r 


INDUSTRIAL 
DEPRESSIONS 

THEIR  CAUSES  ANALYSED  AND  CLASSIFIED  WITH  A 

PRACTICAL  REMEDY  FOR  SUCH  AS  RESULT 

FROM  INDUSTRIAL  DERANGEMENTS 

OR 

IRON  THE  BAROMETER 
OF  TRADE 


BY 

GEO.    H.    HULL 


NEW  YORK 

FREDERICK  A.   STOKES  COMPANY 
1911 


Copyright,  1911,  by 
FREDERICK  A.  STOKES  COMPANY 


All  rights  reserved,  including  that  of  translation  into  foreign 
languages,  including  the  Scandinavian 


November,  1911 


THE'PLIMPTON'PRESS 

[W • D -O] 
NORWOOD. MASS  «U'S- A 


FOEEWOED 

EACH  new  occupation  of  mankind  that  has 
brought  large  increase  to  his  rate  of  wealth- 
producing  has,  in  time,  developed  some  malady 
which  has  retarded  its  effectiveness,  until  he  has 
discovered  the  nature  of  the  disorder  and  acquired 
skill  in  overcoming  or  abating  its  ravages. 

In  the  great  economic  revolution  which  in  a  half- 
century  has  enabled  the  iron-producing  nations  to 
increase  the  products  of  their  manufacturing  and 
mechanical  industries  tenfold,  a  new  malady,  known 
as  Industrial  Depression,  has  developed  and  grown 
to  serious  proportions. 

As  the  malady  of  depression  has  progressed  and 
increased  in  its  direful  effects,  a  great  flood  of  un- 
tenable reasons  have  been  assigned  as  its  cause. 
These  have  so  obscured  and  buried  the  real  cause 
from  sight  that  the  people  have  not  yet  realized  its 
nature.  They  looked  for  something  external  and 
mysterious,  whereas  the  real  cause  was  internal, 
and  so  simple  and  commonplace  as  not  to  be  sus- 
pected. They  looked  for  the  cause  among  great 
and  much  talked  of  events  or  occurrences,  the 
operation  of  which  was  in  opposition  to  their  own 
ideas,  whereas  the  real  cause  was  the  voluntary 
action  of  a  silent  motive  that  existed  within  the 
breasts  of  each  one  of  them,  and  that  each  unsus- 
pectingly contributed  his  share  in  making  effective. 
They  endeavored  to  solve  the  mystery  by  a  synthetic 
method  of  reasoning,  vvhich  was  useless,  instead  of 


267362 


vi  FOREWORD 

by  an  analytical  method  which  alone  is  effective  in 
problems  of  this  nature. 

In  this  book  we  have  given  an  account  of  the 
analysis  of  all  these  alleged  causes;  we  have  separated 
the  tenable  ones  from  the  untenable  ones,  have  identi- 
fied and  classified  the  real  causes  of  each  one  of  the 
serious  industrial  depressions  which  have  occurred 
in  modern  times,  whether  they  resulted  from  external 
or  internal  derangements,  and  have  suggested  a 
practical  remedy  for  those  which  result  from  in- 
ternal derangements. 


CONTENTS 

PART    FIRST 

CHAPTER  I 

EVOLUTION  IN  THE   OCCUPATIONS   OP  MANKIND 

PAGE 

Successive  steps  by  which  man  has  attained  his  present  rate  of 
wealth-producing,  and  the  new  maladies  which  have  developed 

with  each  step 1 

Conditions  which  limited  man's  growth  in  wealth  up  to  the  middle 

of  the  nineteenth  century 4 

Birth  of  the  Manufacturing  Age 7 

Wonderful  growth  in  wealth  after  the  middle  of   the   nineteenth 

century 8 

Concerning  the  new  Manufacturing  Age 9 

The  most  serious  malady  developed  by  the  great  increase  in  the 

manufacturing  and  mechanical  industries 11 

CHAPTER  II 

ADVENT    OF    THE   MALADY    INDUSTRIAL     DEPRESSION    AND     EFFORTS   MADE 
TO  DISCOVER  ITS   CAUSE 

Not  at  first  recognized 13 

Great  diversity  of  opinion  as  to  the  cause  when  recognized  ....  13 

Efforts  made  to  discover  the  cause 15 

No  recognition  of  its  being  a  new  malady 15 

Completeness  of  the  list  of  alleged  causes  subjected  to  analysis  ...  16 

CHAPTER  III 

FINANCIAL  PANICS  VS.   INDUSTRIAL  DEPRESSIONS 

The  respective  causes  of  these  two  maladies 18 

The  differences  compared 18 

A  panic  need  not  cause  a  depression,  and  vice  versa 20 

The  confusing  effect  of  confounding  the  causes  of  these  two  maladies   .  21 

CHAPTER  IV 

ANALYSIS  OF  THE  THEORY  OF  OVERPRODUCTION 

Introduction  and  definitions 22 

Is  it  possible  for  man  to  produce  more  than  man  is  able  to  buy?      .      .  24 

Is  it  possible  for  man  to  produce  more  than  man  desires  to  acquire?     .  26 

vii 


viii  CONTENTS 

PAGE 

Temporary  surplus  production 30 

Lesson  to  be  learned  from  the  facts  illustrated 33 

Illustrations  of  the  wise  method  of  utilizing  temporary  surplus  pro- 
duction    35 

Conclusions 41 

CHAPTER  V 

POOR     CROPS  —  PRESIDENTIAL     ELECTION  —  REACTION  —  PERIODICITY 

"Poor  crops."     (With  Table) 43 

"Presidential  Elections."     (With  Table) 49 

"Reaction" 51 

"Periodicity" 54 

CHAPTER  VI 

TURNING  TOO  MUCH  CIRCULATING  CAPITAL  INTO  FIXED  CAPITAL  —  A  MENTAL 

DISEASE  —  THE    WORLD    ALREADY    PROVIDED    WITH 

ECONOMIC   TOOLS 

"Turning  too  much  circulating  capital  into  fixed  capital"   ....  58 

The  harm  which  comes  from  this  and  another  false  belief       ...  58 

Analysis  of  the  facts  about  circulating  and  fixed  capital    ....  59 

Illustrations 61 

"A  Mental  Disease" 63 

Prevalence  of  this  belief  in  different  forms 63 

"The  World  Already  Provided  with  Economic  Tools"      ....  64 
Frequent  recurrence  of  this  belief.     (M.  Georges  de  Leveleye  and 

M.  Piermes  quoted) 64 

The  late  Hon.  Carroll  D.  Wright  quoted 64 

The  belief  wholly  untenable 65 

CHAPTER  VII 

MINOR  ALLEGED  CAUSES  OF  INDUSTRIAL  DEPRESSIONS 

High  and  low  tariff       . 66 

Those  eliminated  because  they  make  business 67 

"Large  imports  of  goods  and  exports  of  gold" 67 

"Large  transfers  of  money" 68 

"Influx  of  Foreign  Capital" 69 

"Immigration,"  "Coolie  labor,"  "Convict  labor" 69 

"Bad  laws,"  "Bad  legislation" 70 

"Want  of  confidence  in  Government" 70 

CHAPTER  VIII 

RESULT   OF   ELIMINATING   THE   UNTENABLE   ALLEGED    CAUSES 

The  plan  pursued  in  the  process  of  elimination 71 

The  letters  used  in  Appendices  B  and  C  to  indicate  for  what  reason, 

or  reasons,  each  was  eliminated 72 

All  but  twenty-one  of  the  alleged  causes  eliminated 74 


CONTENTS  ix 

PAGE 

Character  of  the  first  twelve 75 

The  next  eight  all  point  to  one  thing  as  the  cause  of  these  mysterious 

depressions 76 

The  remaining  one  is  simply  a  confirmation  of  the  last  eight  ...  77 
The  last  nine  comprise  a  complete  list  of  what  must  be  remedied  to 

prevent  the  first  twelve 77 

CHAPTER  IX 

IRON   THE   BAROMETER   OF   TRADE.    CONTEMPORANEOUSNESS  AND   SEVERITY 
OP   INDUSTRIAL   DEPRESSIONS   IN   THE   FIVE   CHIEF   IRON-PRODUCING 

NATIONS 

Introduction  and  table 79 

Clues  which  point  to  high  prices  and  particularly  to  the  high  price 
of  iron  and  other  construction  materials  as  the  cause  of  all  the 
industrial  depressions  which  are  not  the  result  of  external  causes  .  80 
Influence  of  iron  production,  or  the  lack  of  it,  in  all  nations  ....  81 
Correspondence  between  the  high  prices  of  iron  and  industrial  de- 
pressions       82 

Influence  of  the  price  of  iron  on  all  business 85 

Evidence  of  the  prevalence  of  iron  in  all  things 88 

Iron  the  Barometer  of  Trade 89 

Why  the  cause  of  industrial  depressions  has  so  long  remained  a 

mystery 90 


PART   SECOND 

CHAPTER  X 

ANALYSIS   OF  THE   NATION'S  BUSINESS 

The  four  systems  of  business.     Their  limits.     Their  growth.    Their 

independent  and  interdependent  qualities 95 

Three  of  the  systems  are  limited  in  their  increases  and  decreases. 

The  industries  are  alone  unlimited 98 

How  to  search  for  the  cause  of  these  depressions 100 

Where  to  search  for  the  cause  of  these  depressions 101 

Construction  the  main  thing  which  increases  and  decreases  .      .      .  104 

CHAPTER  XI 

ANALYSIS   OF   CONSTRUCTION 

Necessity  construction  vs.  investment  construction 106 

Investment  construction  increases  the  capacity  of  the  country       .      .  107 

Table 108 

Purchases  for  immediate  delivery  vs.  contracts  for  future  delivery        .  110 
Result  of  delivery  coming  so  long  after  demand  ....                .  115 
Small  benefit  of  boom  prices  realized  by  manufacturers  of  construc- 
tion materials 118 

Table  119 


x  CONTENTS 

PAGE 

Premiums  for  immediate  and  discounts  for  future  delivery  materials  121 

Cause  of  the  abnormal  advance  in  prices 122 

What  are  the  industries  of  a  nation? 125 

Where  the  responsibility  rests 125 

CHAPTER  XII 

THE  MOTIVE  WHICH  UNDERLIES  THE  INDUSTRIES,  AND  THE  REAL  CAUSE  OP 
INDUSTRIAL  DEPRESSIONS 

The  motive  which  originates  and  carries  on  the  industries  .  .  .  127 
Action  of  the  motive  hi  stimulating  investment  construction  .  .  128 
Action  of  the  motive  hi  retarding  investment  construction  .  .  .  128 

The  real  cause  of  booms  and  depressions 129 

Illustration  of  its  practical  effect  upon  individuals 131 

Illustration  of  its  effect  on  nations 132 

It  stimulates  or  retards  the  industries  with  equal  consistency  and 

certainty 134 

Deductions  which  tend  to  the  conclusion  that  high  price  of  construc- 
tion is  the  one  and  only  cause  of  these  mysterious  depressions  .  134 
If  this  conclusion  be  true,  an  analysis  of  each  depression  of  modern 
times,  in  the  five  industrial  nations,  must  show  clearly  that  it 
was  the  result  of  an  external  and  recognized  cause  or  the  result 
of  high  prices  of  construction 137 


PART  THIRD  , 

CHAPTER  XIII 

ANALYSIS   OF   THE   INDUSTRIAL  DEPRESSIONS   FROM   1833   TO    1887 

These  six  depressions  were  each  the  result  of  internal  industrial 

derangement 141 

The  depression  of  1836  to  1839  and  panic  of  1837 142 

The  depression  of  1846  to  1848 144 

The  depression  of  1855  to  1858  and  panic  of  1857 145 

The  depression  of  1865  to  1870 147 

The  depression  of  1872  to  1876  and  panic  of  1873 149 

The  depression  of  1882  to  1885 155 

Remarks  relating  to  the  six  depressions  described  in  this  chapter    .     .  156 

CHAPTER  XIV 

ANALYSIS   OF  THE   INDUSTRIAL  DEPRESSIONS   FROM   1887   TO   1897 

These  five  depressions  were  each  the  result  of  external  financial 

derangements 160 

The  depression  caused  by  the  Financial  Panic  of  1890       ....  160 

The  depression  caused  by  the  Financial  Panic  of  1893       .      .      .      .  161 

The  depression  caused  by  the  Financial  Derangement  of  April,  1894  162 


CONTENTS  xi 

PAGE 

The  depression  caused  by  the  Financial  disturbance  following  the 

Venezuela  Proclamation  in  December,  1895 162 

The  depression  caused  by  the  Financial  disturbance  following  the 

threatened  abolition  of  the  Gold  Standard,  in  July,  1896  .  .  162 

Remarks  relating  to  the  five  depressions- described  in  this  chapter  .      .  163 

The  struggle  between  favorable  industrial  conditions  and  unfavorable 

financial  conditions,  between  1889  and  1898 164 

CHAPTER  XV 

ANALYSIS  OF  THE  INDUSTRIAL  DEPRESSIONS  FROM  1897  TO  1908 
REVIVAL,    BOOM,    AND    DECLINE    OF    1897   TO    1900 

Introduction 166 

The  revival  on  low  prices  from  1898  to  1899 167 

The  spectacular  advance  in  price  of  iron  in  1899 169 

The  Boom  in  1899 169 

The  Decline  in  1900 170 

The  Disease  breaks  out  upon  the  surface  in  1900 171 

REVIVAL   BOOM   AND    DECLINE   OF    1901    TO    1903 

The  Revival 173 

Unquestioned  effect  of  fluctuations  in  price 174 

Sequence  of  events  same  as  1897  to  1900 174 

Two  object  lessons  in  six  years 175 

REVIVAL   BOOM   AND   DECLINE  OF    1904  TO    1907 

Introduction 176 

The  Revival 177 

The  Boom 180 

The  Decline 181 

A  depression  would  have  occurred  in  1908  even  if  there  had  been 

no  panic 181 

Condition  of  Industries  in  1907  as  shown  by  Building  Permits  .      .      .  183 

Condition  of  Industries  in  1907  as  shown  by  Unfilled  Orders  of  United 

States  Steel  Corporation  186 

Conclusive  Evidence  that  the  industrial  depression  of  1908  would 

have  taken  place  irrespective  of  the  financial  panic  in  1907  .  187 


PART  FOURTH 

CHAPTER  XVI 

DEDUCTIONS   DRAWN   FROM  THE   RESULTS   OF  ANALYSIS 

Can  we  gauge  the  probable  length  of  a  depression? 191 

Nothing  in  the  past  indicates  how  low  prices  must  fall  to  start  a 

boom 192 


xii  CONTENTS 

PAGE 

Effective   Demand 193 

The  Rock  of  Industrial  Safety 193 

Illustration  of  conditions  which  decrease  prosperity 194 

Illustration  of  conditions  which  promote  prosperity 195 

CHAPTER  XVII 

MAGNITUDE    OP    THESE    DEPRESSIONS    AND    DANGER   THAT    THE   VALUABLE 
LESSONS  THEY  SHOULD  TEACH  WILL  BE  LOST 

The  United  States  has  experienced  eleven  of  these  depressions     .     .  195 

A  thorough  analysis  of  any  one  would  have  revealed  the  real  cause.      .  195 
Reasonable  to  believe  they  can  be  eradicated,  if  cause  is  located, 

realized,  and  a  logical  remedy  applied 196 

The  twelve  years  from  1897  to  1908  show  three  distinct  and  vivid 
illustrations  of  the  inexorable  effect  of  high  and  low  prices  of 

construction 196 

Unheeded  Warnings 201 

CHAPTER  XVIII 

ANOTHER  DANGER  TO  BE  COUNTERACTED 

Cyclic  Delusion  No.  1  "Very  High  Prices  Will  Never  Come  Again  "  203 

Reasons  for  the  mistaken  belief 203 

Table  of  Advances 204 

Reason  for  believing  they  will  continue  to  come 204 

Misleading  statistics  —  The  Awakening 206 

Cyclic  Delusion  No.  2  "Prices  Will  Never  Go  So  Low  Again"  .     .  207 

Table  of  Declines 208 

Reasons  for  the  mistaken  belief 208 

Conditions  which  carry  prices  down 208 

The  controlling  forces 210 

CHAPTER  XIX 

Resume* 212 

CHAPTER  XX 

HOW  CAN  THESE  MYSTERIOUS  DEPRESSIONS  BE  PREVENTED  ?      THE  REMEDY 

The  Proposed  Remedy 218 

Object  of  the  Proposed  Remedy 226 

Effect  of  the  Proposed  Remedy 227 

APPENDICES 235-277 

INDEX  .                      .                279 


DEFINITIONS  OF  WORDS  AND  TERMS  AS  USED 
IN  THIS  VOLUME 

At  the  outset  it  is  important  that  the  precise  meanings  of  certain  words 
and  terms  (as  they  are  used  in  this  book)  should  be  clearly  and  definitely 
understood. 

The  word  Agriculture  must  be  understood  in  its  broad  sense,  that  is, 
as  including  not  only  the  cultivation  of  the  soil,  such  as  farming,  gardening, 
floriculture,  etc.,  but  all  the  other  occupations  practised  by  a  cultivator 
of  the  soil  in  connection  with  such  cultivation,  as,  for  instance,  dairying, 
the  breeding  and  rearing  of  stock,  poultry,  etc. 

The  word  Commerce  must  be  understood  in  its  broad  sense,  that  is, 
as  including  the  exchange  of  goods,  products,  or  property  of  any  kind; 
the  trading  or  dealings  in  these,  as  well  as  the  transportation  of  them  from 
place  to  place  or  from  seller  to  buyer.  Also  the  transportation  of  persons 
from  place  to  place. 

The  word  Finance  must  be  understood  as  including  everything  con- 
nected with  the  function  or  operations  of  money  or  the  various  mediums 
of  exchange  used  by  the  civilized  peoples  of  the  world,  such  as  coin,  bank- 
notes, checks,  drafts,  bills  of  exchange,  etc.,  and  the  use  and  management 
of  these  by  individuals,  banks,  governments,  corporations,  etc.,  in  pay- 
ments, collections,  expenditures,  revenues,  etc. 

The  word  Industries  must  be  understood  to  include  all  the  manufactur- 
ing and  mechanical  industries;  but  as  this  word  has,  by  common  usage 
in  recent  years,  taken  on  a  more  specific  meaning  than  formerly,  some 
further  explanation  is  required  to  make  clear  just  what  is  included  by 
industries,  and  what  is  excluded.  Agriculture,  for  instance,  has  always 
been  spoken  of  as  an  industry,  but  modern  usage  excludes  what  pertains 
to  agriculture  from  a  place  under  the  term  industrials.  Under  the  head  of 
the  industrial  nations  of  the  world  are  included  only  the  nations  within 
whose  borders  the  value  of  the  products  of  the  manufacturing  and  me- 
chanical industries  exceeds  the  value  of  the  products  of  agriculture. 
The  agricultural  nations  are  those  within  whose  borders  the  value  of  the 
products  of  agriculture  exceeds  the  value  of  the  products  of  the  manu- 
facturing and  mechanical  industries.  Modern  usage,  therefore,  accepts 
the  word  industries  as  something  entirely  apart  and  distinct  from  agri- 
culture, as  it  does  something  apart  and  distinct  from  the  terms  commerce 
or  finance.  Hence  the  word  indvstries  must  be  understood  as  including 
all  the  manufacturing  industries,  but  those  only,  and  as  excluding  every- 
thing which  comes  under  the  heads  of  agriculture,  commerce,  and  finance. 

Manufacturing  is  defined  as  "forming  of  products  by  any  process, 
whether  by  hand  or  by  machinery,"  "working  on  or  combining  materials," 
"to  form  by  labor  into  useful  or  desirable  forms,"  "to  make  into  some- 
thing." 


xiv        DEFINITIONS    OF    WORDS 

The  term  Mechanical  Industries  is  defined  as,  "the  industries  by  which 
products  are  formed  or  manufactured  by  tools  or  by  machinery  into  useful 
or  desirable  forms  and  conditions  "  and  "effects  produced  by  mechanical 
contrivances." 

The  Products  of  the  Industries  must  therefore  be  understood  as  including 
everything  made  or  formed  by  any  person,  whether  by  hand  or  by 
machinery  or  by  tools,  as,  for  example,  buildings,  furniture,  utensils,  orna- 
ments, goods,  machinery,  highways,  public  works,  railroads,  pipe-lines, 
telegraph-lines,  ships  and  all  the  other  various  vehicles,  with  their  equip- 
ments and  furnishings. 

Depression,  in  a  business  sense,  is  defined  as,  "a  state  of  dulness  or 
inactivity,"  "a  protracted  season  when  business  falls  below  the  normal." 

Industrial  Depression  must  therefore  be  understood  to  mean  a  state 
of  dulness  or  inactivity  in  the  manufacturing  and  mechanical  industries 
of  the  country;  a  protracted  season  during  which  the  production  of  houses, 
furniture,  stores,  goods,  factories,  machinery,  railroads,  ships,  telegraph- 
lines,  roadways,  gas-works,  water-works,  pipe-lines,  etc.,  has  fallen  below 
the  normal. 

It  is  the  custom  in  iron-producing  countries  to  speak  of  "stocks  of 
iron"  or  "stocks  of  pig  iron,"  meaning,  in  both  cases,  stocks  of  pig  iron. 
When  "production  of  iron"  or  "production  of  pig  iron"  is  spoken  of, 
however,  it  includes  the  production  of  both  iron  and  steel,  the  latter  being 
regarded  as  a  secondary  form  of  iron.  These  words  and  terms  are  used 
in  this  book  in  the  above  manner. 


INDUSTRIAL    DEPRESSIONS 


INDUSTRIAL  DEPRESSIONS 

CHAPTER  I 

EVOLUTION   IN   THE   OCCUPATIONS   OF  MANKIND 

AS  long  as  man's  efforts  to  provide  himself  with  the 
necessities  of  life  were  confined  to  the  hunting  of 
wild  game,  he  had  few  possessions.  In  this  pursuit  he 
was  compelled  to  roam  over  vast  territories,  which  gave 
him  little  opportunity  to  establish  a  permanent  abiding- 
place,  or  become  possessed  of  anything  of  value,  except 
such  things  as  he  could  carry  about  his  person. 

The  adoption  of  the  pastoral  life  was  man's  first  im- 
portant step  toward  the  accumulation  of  wealth.  As  he 
grew  skilled  in  the  art  of  rearing  and  domesticating  game, 
which  he  had  formerly  only  hunted,  his  growth  in  wealth 
was  accelerated.  This  new  occupation  enabled  him  to 
establish  a  home,  about  which  he  could  gather  and  increase 
his  flocks  and  herds. 

With  this  new  occupation  came  new  conditions,  new 
responsibilities,  and  new  dangers.  As  his  flocks  and  herds 
increased,  disease  made  its  appearance  among  them,  and 
he  soon  learned  that  the  degree  of  success  in  this  new 
occupation  depended  largely  upon  his  being  able  to 
discover  the  nature  of  the  maladies  which  retarded  the 
increase  of  his  possessions,  and  to  acquire  the  knowledge 
and  skill  necessary  to  check  their  ravages. 

When  man  added  the  tilling  of  the  soil  to  his  occupa- 
tions, another  important  step  toward  the  accumulation 
of  wealth  was  taken.  As  this  new  occupation  grew  in 
magnitude,  new  conditions,  new  dangers,  and  new  maladies 

1 


:<i':    :tN*DTiSTRlAL    DEPRESSIONS 

developed.  Some  of  the  dangers  came  from  natural 
elements  which  were  beyond  his  control,  while  others 
were  of  a  nature  which  he  could  understand,  and  against 
which  he  could  in  a  measure  defend  himself.  In  most 
cases,  he  has  been  able  to  restrain  or  suppress  the  ravages 
of  the  serious  agricultural  maladies  which  developed.  In 
others,  as,  for  instance,  by  irrigation,  he  has  been  able  so 
to  control  and  direct  a  natural  element  as  to  make  it 
accelerate  his  rate  of  wealth-producing. 

As  man's  knowledge  of  what  accelerated  or  retarded 
the  effectiveness  of  agriculture,  and  his  skill  in  applying 
his  knowledge  increased,  his  rate  of  wealth-producing 
from  that  source  has  increased. 

As  far  back  as  history  goes,  it  is  found  that  some  portion 
of  the  workers  in  the  more  advanced  nations  were  engaged 
in  what  we  call  manufacturing  and  mechanical  industries.* 

Yet,  notwithstanding  the  antiquity  of  manufacturing 
and  the  accumulated  wealth  of  some  of  the  older  nations, 
it  is  estimated  that  at  the  beginning  of  the  nineteenth 
century,  taking  the  civilized  nations  of  the  world  as  a 
whole,  from  85  per  cent,  to  90  per  cent,  of  the  bread- 
winners were  still  engaged  in  agriculture,  leaving  but 
10  per  cent,  to  15  per  cent,  engaged  in  all  the  other  occu- 
pations, including  manufacturing.  In  the  United  States, 
at  this  period,  those  engaged  in  agriculture  were  estimated 
at  about  90  per  cent.f 

*  In  the  fourth  chapter  of  Genesis,  Tubal-cain,  who  was  born  seven 
generations  after  Adam,  is  mentioned  as:  "The  forger  of  every  cutting 
instrument  of  brass  and  iron."  In  Jeremiah,  we  read  of  "pillars  of  iron"; 
in  Isaiah,  axes  and  hammers  of  iron  are  mentioned.  Iron  was  used  in  the 
time  of  Nebuchadnezzar  to  strengthen  buildings,  bridges,  and  fortifications. 
Axes,  saws,  nails,  and  hammers  were  used  in  the  time  of  David.  Iron 
tools  and  implements  were  used  in  the  time  of  Solomon.  Nails  were  used 
in  the  construction  of  the  Temple.  Iron  was  used  in  the  fortifications  of 
Babylon.  Saws,  picks,  armor,  and  helmets  are  found  in  the  ruins  of 
Nineveh. 

t  The  following  quotation  is  from  page  26  of  "A  Century  of  Population 
Growth,"  published  by  the  Bureau  of  the  Census,  United  States  Depart- 
ment of  Commerce  and  Labor: 

"The  economic  conditions  which  prevailed  in  1790  present  a  marked 
contrast  with  those  which  have  developed  since  and  which  prevailed  univer- 


OCCUPATIONS    OF    MANKIND          3 

Under  such  conditions,  the  value  of  the  products  of 
agriculture  in  the  United  States  at  the  beginning  of  the 
nineteenth  century  so  greatly  exceeded  the  value  of  the 
products  of  the  industries,  that  the  industries  had  little 
independent  influence  upon  the  volume  or  the  tone  of 
the  nation's  business.  Good  crops  at  that  period  meant 
good  times  and  poor  crops  meant  bad  times.  The  in- 
dustries, what  there  were  of  them,  prospered  or  were 
depressed  in  accordance  with  the  changes  in  the  annual 
value  of  the  crops,  and  not  in  conformity  with  any  in- 
herent and  independent  influence  within  the  industries 
themselves. 

In  those  days  the  means  of  communication  and  trans- 
portation between  the  seaboard  and  the  interior  were 
few,  and  necessarily  expensive.  The  great  body  of  the 
settlers  in  the  new  states  lived  in  log  cabins,  and  with  the 
exception  of  the  wagons,  plows,  rifles,  and  a  few  other 
necessities  which  they  carried  with  them  when  they 
migrated,  they  produced  on  their  farms  and  within  their 
families  nearly  everything  they  consumed.  The  towns 
and  villages  were  few  and  far  between,  simply  because 
there  was  little  commerce  to  build  them  up  and  support 
them.* 

sally  in  1900.  In  1900  the  population  of  those  engaged  in  agriculture 
was  only  about  one  third  of  all  persons  gainfully  employed.  At  the  close 
of  the  eighteenth  century  the  greater  part  of  the  inhabitants  of  the  United 
States  derived  their  support  from  this  industry.  It  is  probable  that  nine 
out  of  every  ten  breadwinners  were  engaged  in  some  form  of  agriculture 
during  the  greater  part  of  the  year;  indeed,  in  the  Southern  States,  the 
proportion  was  somewhat  larger." 

*  Alexander  Hamilton  in  his  "Report  on  Manufactures,"  to  the  House 
of  Representatives,  in  1791,  gives  a  list  of  some  seventeen  classes  of  indus- 
tries which  had  reached  sufficient  development  to  involve  special  build- 
ings; the  division  of  labor,  the  ingathering  of  raw  materials  from  distant 
localities,  and  the  distribution  of  the  manufactured  articles  throughout 
the  states.  He  lays  much  stress  and  gives  much  space  to  the  "vast  scene 
of  household  manufacturing"  which  was  carried  on  in  the  thirteen  original 
states  of  the  Union,  and  which  included,  as  he  reports,  "great  quantities 
of  coarse  cloths,  coatings,  serges  and  flannels,  linsey  woolseys,  hosiery  of 
wool,  cotton  and  threads,  coarse  fustians,  jeans  and  muslins,  checked  and 
striped  cotton  and  linen  goods,  bed-ticks,  coverlets,  and  counterpanes,  tow 
linens,  coarse  shirtings,  sheetings,  towelings  and  table  linen  and  various 


4         INDUSTRIAL    DEPRESSIONS 

Agriculture  is  confined  almost  exclusively  to  the  pro- 
duction of  the  necessities  of  life  which  are  consumed 
from  day  to  day.  Only  the  products  of  the  manufactur- 
ing and  mechanical  industries  comprise  the  objects  of 
permanent  wealth.  It  is  then  obvious  that,  under  so 
powerful  an  incentive  as  the  instinctive  desire  for  wealth, 
the  manufacturing  and  mechanical  industries  would 
have  increased  to  greater  magnitude  during  the  thousands 
of  years  which  elapsed  before  the  beginning  of  the  nine- 
teenth century  had  they  not  been  held  back  by  some 
all-powerful  condition  or  influence. 

The  Great  Epoch 

The  middle  of  the  nineteenth  century  marked  the 
advent  of  the  most  remarkable  material  epoch  in  the 
history  of  civilization.  We  refer  to  the  successful  intro- 
duction of  practical  agricultural  machinery.  Previous 
to  that  time,  and  as  far  back  as  the  history  of  mankind 
has  come  down  to  us,  agriculture  had  been  carried  on 
by  hand  labor,  supplemented  by  such  help  as  man  was 
able  to  obtain,  in  plowing  and  harrowing,  by  the  use  of 
horses  and  oxen.  Under  such  conditions,  a  farmer  and 
his  family,  if  possessed  of  a  farm  of  sufficient  size  and 
fertility,  could,  with  diligence,  produce  of  the  necessities 
of  life  sufficient  for  their  own  maintenance  and  a  small 
surplus,  —  but  only  a  small  surplus. 

Conditions  Which  Limited  Man's  Growth  in  Wealth  Up 
to  the  Middle  of  the  Nineteenth  Century 

Broadly  speaking,  the  surplus  agricultural  products 
of  the  United  States  up  to  1845  were  little  more  than  the 
amount  required  for  the  sustenance  of  the  15  per  cent. 

mixtures  of  wool  and  cotton  and  of  cotton  and  flax  are  made  in  the  house- 
hold way,  and  in  many  instances  to  an  extent  not  only  sufficient  for  the 
supply  of  the  family  in  which  they  are  made,  but  for  sale,  and  even  in 
some  cases  for  exportation."  He  advises  the  House  of  Representatives 
that:  "It  is  computed  in  a  number  of  districts  that  two  thirds,  three 
fourths,  and  even  four  fifths  of  all  the  clothing  of  the  inhabitants  are  made 
by  themselves." 


OCCUPATIONS    OF    MANKIND        5 

of  the  population  which  were  not  connected  with  agri- 
culture. This  is  conclusively  shown  by  the  small  amount 
which,  up  to  that  time,  was  available  for  export.  The 
exports  of  wheat  and  flour  from  the  United  States  up  to 
1845  averaged  only  about  one  million  bushels  per  year, 
and  was  less  during  the  decade  between  1830  and  1840 
than  between  1800  and  1810.  In  fact,  in  1837  and  1839, 
it  was  necessary  to  import  large  quantities  of  grain  to 
supply  the  people  fully.*  The  growth  in  the  relative 
value  of  the  manufactured  products  up  to  1840  did  not 
even  keep  pace  with  the  increase  in  population,  which 
grew  from  5,300,000  in  1800  to  17,000,000  in  1840. 
During  this  period  of  forty  years,  the  relative  value  of 
the  exports  of  merchandise  fell  from  $13.37  per  capita 
to  $7.25  per  capita,  and  the  relative  value  of  the  imports 
fell  from  $17.19  per  capita  to  $5.76  per  capita. f 

It  has  become  our  habit  to  attribute  the  rapid  growth 
of  wealth  in  modern  times  to  the  practical  utilization  of 
steam  power,  the  introduction  of  railroads,  and  the 
factory  system;  but  these  three  facilities  had  been  in 
existence  many  years  before  there  was  any  rapid  increase 
in  the  growth  of  wealth.  The  factory  system  was  in- 
augurated in  the  United  States  as  early  as  1790,  but  at 
the  end  of  thirty  years  had  shown  little  gain.J  The 
first  railroad  in  the  United  States  was  built  in  1807,  but 
twenty-three  years  afterwards  there  were  but  twenty- 
three  miles  in  operation.§  Steam  navigation  was  inaugu- 
rated on  the  Hudson  River  as  early  as  1807 1 1  and  on  the 
Ohio  River  in  1811,  but  it  was  not  until  many  years 
afterwards  that  it  became  commercially  important.  If 
As  long  as  the  power  to  buy  and  the  power  to  produce 
were  confined  to  narrow  limits,  the  growth  in  wealth  was 

*  See  "American  Farm  Machinery"  —  The  Americana. 
t  Progress  of  the  United  States,  etc.     Report  of  the  United  States 
Department  of  Commerce  and  Labor. 

J  See   "American  Labor"  —  The  Americana. 

§  See  "American  Railroads"  —  The  Americana. 

||  See  "Steam  Vessels" — The  Americana. 

TJ  See  "  United  States  Economic  Development" — The  Americana. 


6         INDUSTRIAL    DEPRESSIONS 

necessarily  slow.  Steam  power,  the  factory  system,  and 
railroads  were  each  one  necessary  to  rapid  growth  in 
wealth,  but  these  did  not  comprise  all  that  was  necessary. 
Something  was  lacking.  The  world  would  still  have 
moved  on  with  these  three  facilities  in  existence,  but 
with  little  gain  in  growth  had  the  fourth  necessity  not 
been  supplied.  Farm  machinery  was  necessary  to  the 
full  and  free  growth  of  the  others.  This  fourth  facility 
provided  both  the  workers  to  produce  and  the  power  to 
buy.  By  one  stroke,  it  created  a  demand  and  a  supply 
greater  than  the  world  had  ever  dreamed  of. 

Even  had  the  machinery,  railroads,  and  factories 
which  existed  in  1840  been  as  perfect  in  mechanism  at 
that  time  as  they  were  at  the  end  of  the  century,  progress 
in  the  industries  must  have  been  slow.  First,  because  the 
small  surplus  production  of  food  and  textiles  was  not 
sufficient  to  maintain  large  cities;  second,  because  as 
long  as  agriculture  produced  little  more  than  was  neces- 
sary to  maintain  the  agricultural  workers  themselves, 
they  created  for  themselves  little  buying  power,  and 
consequently  there  was  little  demand  among  them  for 
the  products  of  manufacturing  establishments. 

Conditions  in  the  older  nations  at  this  period  were 
somewhat  different  from  those  in  the  United  States. 
In  this  country  there  was  very  little  accumulated  wealth, 
while  the  older  countries  possessed  the  accumulations 
of  many  centuries.  In  Great  Britain  and  France  manu- 
factures had  made  more  progress.  These  nations  im- 
ported more  largely  of  the  necessities  of  life,  leaving  a 
larger  percentage  of  workers  to  take  part  in  manufactur- 
ing. They  possessed  ample  means  for  the  encouragement 
of  manufacturing,  and  the  creation  and  increase  of  the 
necessary  transportation  facilities  for  the  carriage  of 
their  manufactured  products  to  the  various  seaports  of 
the  world. 

The  relative  value  of  the  products  of  the  industries 
of  these  two  nations  exceeded  the  relative  value  of  these 
products  in  the  United  States,  but  the  buying  power  of 


OCCUPATIONS    OF   MANKIND        7 

the  world,  not  excepting  these  two  more  wealthy  nations, 
was  still  limited  by  the  small  percentage  of  population 
which  lived  in  the  cities,  and  the  small  buying  power  of 
the  large  percentage  which  were  necessarily  engaged  in 
agriculture.  The  progress  of  manufacturing  under  such 
conditions  was  comparatively  slow  in  all  nations,  and 
this  had  been  the  condition  of  the  world  from  the 
beginning. 

BIRTH   OF   THE   MANUFACTURING   AGE 

Much  is  written  and  said  of  the  wonderful  growth  of 
manufacturing  in  the  United  States  during  the  last  half 
of  the  nineteenth  century,  but  little  is  written  or  said 
of  what  made  that  wonderful  growth  possible.  It  was 
the  introduction  of  practical  farm  machinery.  This  so 
rapidly  augmented  the  effectiveness  of  farm  labor,  that 
at  the  end  of  the  century  the  agricultural  workers  were 
able  to  produce  a  surplus  of  187  per  cent,  above  their 
own  necessities,  instead  of  a  paltry  17  per  cent.  By 
this  means  35  per  cent,  of  the  nation's  workers  were  able 
to  supply  all  the  people  with  food  and  textiles,  and  thus 
release  50  per  cent,  to  take  part  in  manufacturing  and  the 
other  occupations.* 

Lest  this  statement  should  not  carry  the  full  force  and 
meaning  it  deserves,  let  us  analyze  it.  The  workers  of 
the  United  States  in  1900  amounted  to  29,000,000  per- 
sons. By  the  gradual  release  of  50  per  cent,  of  the  nation's 
workers  from  agriculture  between  1800  and  1900,  14,500,- 
000  workers,  broadly  speaking,  were  in  effect  transferred 
from  the  farms  to  the  cities  and  towns,  where  they 
became  engaged  in  manufacturing  and  the  other  occu- 
pations, which  in  the  first  part  of  the  century  had  been 
carried  on  by  15  per  cent,  of  the  workers. 

This  marvelous  economic  revolution  provided  a  market 

*  See  "  Agriculture  " — The  Americana :  "  The  amount  of  human  labor 
necessary  to  produce  a  bushel  of  wheat  was  reduced  in  sixty-six  years 
from  three  hours  and  three  minutes  to  an  average  of  about  ten  minutes, 
while  the  cost  of  that  labor  fell  from  seventeen  and  three  fourths  cents  to 
three  and  one  half  cents  a  bushel." 


8         INDUSTRIAL    DEPRESSIONS 

in  the  cities  and  towns  for  the  great  increase  in  the  volume 
of  the  surplus  agricultural  products,  and  the  large  revenue 
derived  by  the  remaining  agricultural  workers  from  the 
sale  of  these  surplus  products  created  such  a  tremendous 
buying  power  among  them,  that  they  were  able  to  absorb 
a  large  share  of  the  manufactured  products  of  such 
portion  of  the  14,500,000  as  became  thus  employed. 
But  this  is  not  all.  Commerce  and  finance,  which  were 
small  before  the  introduction  of  farm  machinery,  were 
proportionately  augmented  by  the  transportation  and 
distribution  of  the  increased  volume  of  surplus  agricultural 
products  transported  from  the  farms  to  the  cities,  and 
the  increased  volume  of  manufactured  products  trans- 
ported from  the  cities  to  the  farms.  Through  this 
remarkable  change,  the  35  per  cent,  of  workers  which 
are  still  employed  upon  the  farms  are  not  only  able  to 
produce  food  and  textiles  in  sufficient  quantities  to 
supply  their  own  needs  and  the  needs  of  the  greatly 
augmented  population  of  the  cities,  but  are  able  to  sup- 
ply a  vast  amount  for  export  to  foreign  lands,  thus  enrich- 
ing themselves  and  adding  to  the  resources  of  the  nation. 

WONDERFUL     GROWTH     OF    WEALTH    AT    THE     MIDDLE     OF 
THE   NINETEENTH  CENTURY 

This  wonderful  economic  revolution  may  be  said  to 
have  commenced  in  1845  with  the  commercial  intro- 
duction of  a  practical  reaper.  Within  two  years  the 
exports  of  wheat  and  flour  had  jumped  to  $32,000,000, 
which  was  five  times  as  great  as  the  average  for  the 
previous  forty  years.*  Within  five  years  nearly  all 
kinds  of  labor-saving  farm  machinery  had  been  intro- 
duced, f  Railroad  building,  which  had  averaged  about 
300  miles  per  year  up  to  that  time,  more  than  doubled 
in  1847,  reached  1,656  miles  in  1850,  2,452  miles  in  1853, 

*  See  "American  Farm  Implements"  —  The  Americana. 

t  "  By  1850  the  chief  forms  of  labor-saving  agricultural  implements  of 
American  manufacture  were  Introduced."  "  American  Manufacturers  " 
— The  Americana. 


OCCUPATIONS    OF    MANKIND        9 

and  3,600  miles  in  1856.  *  The  value  of  all  farm  prop- 
erty increased  from  $3,900,000,000  in  1850  to  $7,900,- 
000,000  in  1860  —  *  over  100  per  cent,  in  ten  years,  a 
rate  of  increase  which  had  not  been  paralleled  in  any  age 
or  in  any  country. f  Savings-bank  deposits  increased 
from  $14,000,000  in  1840  to  $43,000,000  in  1850,  and 
to  $149,000,000  in  1860.  Gold  and  silver  in  circulation 
increased  from  $79,000,000  in  1840  to  $147,000,000  in 
1850,  and  to  $228,000,000  in  1860.  The  coinage  of  gold 
increased  from  $1,600,000  in  1840  to  $31,900,000  in 
1850.  Gold  production  increased  from  $11,600,000  in 
1840  to  $50,000,000  in  1850,  and  immigration  from-84,000 
to  369,000  within  this  wonderful  decade.  * 

At  the  beginning  of  the  nineteenth  century  the  products 
of  agriculture  in  the  United  States  were  the  source  of 
maintenance  to  85  per  cent,  of  the  inhabitants  of  the 
country,  while  the  products  of  the  manufacturing  estab- 
lishments were  the  source  of  maintenance  to  but  a  small 
portion  of  the  remaining  15  per  cent,  of  the  inhabitants. 
At  the  end  of  the  century,  the  value  of  the  annual  products 
of  agriculture  was  $5,017,000,000;  while  the  value  of 
the  products  of  the  manufacturing  establishments  was 
$13,014,000,000;  cost  of  materials  used  in  manufacturing, 
$7,346,000,000;  wages  and  salaries  paid  by  the  manu- 
facturing establishments,  $2,731,000,000.* 

Is  it  exaggerating  the  case  to  call  the  period  of  the 
introduction  of  farm  machinery  the  most  remarkable 
material  epoch  in  the  history  of  civilization?  Glance 
over  the  history  of  the  world  for  a  thousand  years  or 
more.  Is  there  anything  to  compare,  in  a  material 
sense,  with  the  bursting  of  bonds  which  for  all  time  had 
limited  man's  effectiveness  in  the  production  of  wealth?  J 

*  Bureau  of  Statistics,  Department  of  Commerce  and  Labor. 

t  "In  the  rate  of  increase  it  was  the  most  remarkable  decade  in  history, 
the  national  wealth  having  increased  126  per  cent,  from  1850  to  1860,  as 
against  36  per  cent,  from  1890  to  1900."  (Congressional  Record,  Vol.  47, 
p.  850.) 

J  See  "  Agriculture  "  —  The  Americana :  "  If  we  may  judge  of  the  results, 
however,  this  century  has  witnessed  more  progress  in  many  directions  than 
the  three  thousand  years  preceding." 


10       INDUSTRIAL    DEPRESSIONS 

Is  there  anything  to  compare  with  the  rapid  release  of 
this  large  percentage  of  farm-workers  to  swell  the  per- 
centage of  workers  in  the  manufacturing  industries  and 
the  consequent  rapid  increase  in  the  accumulated  wealth 
of  such  of  the  nations  as  had  adopted  farm  machinery? 

That  the  United  States  should  have  been  the  birth- 
place of  this  important  evolution  was  entirely  logical. 
Its  population  of  twenty  millions  was  the  spontaneous 
gathering  together  of  people  from  many  nations, — people 
in  whose  blood  the  spirit  of  progress  was  too  intense  to 
hold  them  in  their  native  lands.  The  new  nation  had 
recently  obtained  its  independence.  From  1790,  when 
the  last  of  the  thirteen  original  states  ratified  the  Consti- 
tution, to  1846,  seventeen  new  states  were  added  to  the 
Union.  During  this  fifty-six  years,  a  great  flood  of 
settlers  had  poured  in  a  continuous  stream  from  the 
Atlantic  states  to  the  Mississippi  Valley,  until  it  had 
covered  that  vast  territory  with  an  almost  unbroken 
expanse  of  farms.  Here  was  a  vast  empire  of  civilized, 
energetic,  and  progressive  people.  Cognizant  of  the 
luxuries  of  the  older  nations  from  which  they  came,  they 
were  able  to  produce  little  beyond  the  bare  necessities 
of  life;  yet  they  occupied  a  vast  territory  of  virgin  soil, 
out  of  which  they  might  wrest  more  wealth  than  the 
world  had  ever  dreamed  of,  if  each  of  the  workers  had 
but  possessed  more  hands  with  which  to  win  it. 

This  was  the  impulse  which  consciously  or  unconsciously 
pervaded  this  vast  country,  greater  in  extent  than  the 
combined  territory  of  many  of  the  nations  whence  these 
people  had  their  origin.  Something  had  to  happen. 
As  to  have  more  than  two  hands  was  a  human  impossi- 
bility, those  hands  and  the  brains  which  directed  them 
found  means  to  harness  and  bring  to  their  aid  the  winds, 
the  waters,  and  the  metals  of  the  earth.  They  grappled 
with  and  controlled  the  wonderful  powers  of  electricity. 
By  this  means  they  have  increased  the  product  of  those 
hands  tenfold  in  one  short  half-century. 

This  change  brought  far-reaching  consequences.     As 


OCCUPATIONS    OF    MANKIND       11 

the  per  capita  consumption  of  agricultural  products 
could  not  be  increased  to  keep  pace  with  the  increase 
in  the  per  capita  production,  a  vast  army  of  farm-workers 
was  from  year  to  year  forced  to  seek  other  occupations. 
At  first  this  was  difficult.  Before  the  adoption  of  farm 
machinery  the  farmers  of  this  vast  territory  not  only 
produced  nearly  all  their  household  necessities,  but  raised 
the  fiber  for  cloth,  wove  the  cloth,  and  made  the  clothing 
they  wore.  But  when  machinery  increased  the  per 
capita  production  of  food  and  fiber  so  greatly,  they  could 
produce  so  large  a  surplus  of  these  things  at  so  low  a 
cost  in  labor,  that  it  paid  them  better  to  buy  factory- 
made  clothing  and  household  necessities,  and  to  give  all 
their  energies  to  increasing  their  surplus  of  agricultural 
products  to  sell  in  exchange  for  manufactured  products. 
This  was  the  evolution  which,  at  one  stroke,  provided 
occupation  for  the  50  per  cent,  of  farm-hands  as  they  were 
thrown  out  of  employment  by  the  adoption  of  agri- 
cultural machinery,  provided  a  market  for  the  great 
increase  in  surplus  farm  products,  and  gave  a  heretofore 
unknown  impetus  to  the  rapid  growth  of  commerce, 
finance,  and  the  manufacturing  and  mechanical  industries. 
This  last  evolution  in  the  occupations  of  mankind  sur- 
passed all  former  evolutions  in  its  vast  importance. 
Before  it  occurred,  the  greater  part  of  man's  energies  was 
required  to  produce  the  necessities  of  life,  which  were 
consumed  from  day  to  day.  After  it  occurred,  the 
greater  part  of  man's  energies  could  be  given  to  the 
production  of  permanent  wealth,  which  endures  for 
generations. 

THE    MOST    SERIOUS    MALADY    DEVELOPED    BY    THE    GREAT 
INCREASE  IN  THE  MANUFACTURING  AND  MECHANI- 
CAL  INDUSTRIES 

As  long  as  the  industries  were  small  in  volume,  they 
contained  little  force  within  themselves  either  to  retard 
or  accelerate  their  own  growth,  and  they  developed  no 
serious  internal  malady.  Any  increase  or  decrease  in 


12       INDUSTRIAL    DEPRESSIONS 

their  volume  was  the  result  of  some  external  cause,  such 
as  war  or  peace,  large  or  small  crops,  favorable  or  un- 
favorable financial  conditions,  etc.  But  in  the  nations 
where  the  industries  have  largely  increased,  new  forces 
have  developed,  new  maladies  have  appeared,  and  these 
new  influences  have  at  times  greatly  accelerated  or 
retarded  the  growth  and  prosperity  of  the  industries. 

One  reads  of  nations  which  were  destroyed  by  their 
great  wealth.  It  was  not  great  wealth  which  destroyed 
these  nations;  it  was  the  unconnected  maladies  and  evils 
which  grew  up  with  the  wealth.  The  instinctive  desire 
for  gain  is  a  motive  implanted  in  man's  breast  by  his 
Creator.  It  is  not  only  an  incentive  to  the  increase  of 
wealth,  but  it  is  the  motive  which  from  the  beginning 
of  the  world  has  transformed  barbarism  into  civilization. 
This  motive  must  be  recognized  as  ever-present  and  as 
the  great  power  which  controls  man's  acts  in  all  the 
material  interests  of  life.  It  cannot  be  eradicated.  If 
it  were  eradicated  in  any  nation,  that  nation  would  sink 
back  to  barbarism. 

Just  as  man  has  been  obliged  to  understand  and  con- 
tend against  the  diseases  which  developed  with  the 
herding  of  large  numbers  of  animals,  and  as  he  has  been 
obliged  to  understand  and  contend  against  the  diseases 
and  pests  which  developed  with  the  growth  of  agriculture, 
so  he  must  learn  to  understand  and  contend  against  the 
diseases  which  have  developed  with  the  growth  of  the 
industrial  system.  Already  the  country  has  had  twenty- 
six  years  of  retarded  growth  out  of  the  last  fifty-five  years, 
as  a  result  of  these  maladies.*  These  years  of  depression 
have  been  attended  by  suffering  and  privation,  through 
the  enforced  idleness  of  great  numbers  of  the  bread- 
winners of  the  land,  and  the  industrial  system  can  only 
become  a  steady  and  constant  yielder  of  maximum  wealth 
when  its  maladies  are  understood  and  their  ravages 
overcome  or  alleviated. 

*  See  Table,  page  109. 


CHAPTER  II 

ADVENT  OF  THE  MALADY  OF  INDUSTRIAL  DEPRESSION,  AND 
EFFORTS   MADE    TO    DISCOVER   ITS    CAUSE 

WHEN  these  depressions  first  made  their  appearance 
they  "did  not  involve  the  modern  industrial 
conditions"  *  and  were  not  recognized  or  spoken  of  as 
industrial  depressions.  Agriculture  had  been  the  domi- 
nating force  for  all  time.  The  people  had  become  accus- 
tomed to  see  what  few  industries  there  were,  prosperous 
when  crops  were  good  and  depressed  when  crops  were 
poor,  so  they  failed  to  recognize  any  independent  influence 
of  the  industries  for  a  long  ,time  after  these  influences 
were  actually  of  some  moment. 

As  the  industries  grew  in  volume  and  importance,  the 
fact  that  these  disturbances  affected  them  primarily, 
and  at  times  exclusively,  was  gradually  forced  upon  the 
attention  of  the  public.  Then  arose  a  great  diversity  of 
opinion  as  to  their  cause.  By  many  persons  they  were 
attributed  to  some  celestial  or  terrestrial  influence  acting 
upon  the  human  mind  in  some  such  manner  as  the  moon 
influences  the  tides  of  the  ocean.  Others  thought  they 
resulted  from  some  mysterious  psychological  law,  while 
still  others  attributed  them  to  some  occurrence  or  train 
of  events  which  came  under  their  personal  observation. 
For  instance:  The  banker  cited  reasons  connected  with 
finance;  the  laborer  cited  reasons  connected  with  wages, 
or  with  the  relations  of  capital  to  labor;  the  merchant 
cited  reasons  connected  with  tariff,  transportation,  com- 
petition, and  the  like;  the  clergyman  and  moralist  cited 
reasons  connected  with  morals  and  religion;  the  manu- 
facturer thought  depressions  came  from  overproduction, 

*  First  Annual  Report  of  the  United  States  Commissioner  of  Labor,  page  13. 

13 


14       INDUSTRIAL    DEPRESSIONS 

etc.,  while  the  politician  traced  them  to  changes  of  ad- 
ministration, bad  laws,  etc.  The  English  farmer  attribu- 
ted them  to  the  free  admittance  to  that  country  of  foreign 
agricultural  products.  A  Dutch  committee  in  1886 
found  an  important  cause  in  the  low  price  of  German 
vinegar;  a  German  committee,  in  the  great  decline  in 
the  price  of  beet-root  sugar. 

Professor  Jevons  thought  crises  resulted  from  sun 
spots;  that  is,  the  sun  spots  affected  the  harvest,  the 
harvest  affected  the  money  market,  and  the  money  market 
affected  all  business.  The  untenability  of  this  theory 
was  demonstrated  when  time  developed  that  sun  spots 
occurred  when  there  were  no  financial  or  industrial 
disturbances,  and  that  financial  and  industrial  disturb- 
ances occurred  when  there  were  no  sun  spots... 

That  unfavorable  weather  produced  poor  crops,  and 
that  poor  crops  affected  finance  and  the  industries  un- 
favorably, had  been  recognized  for  centuries,  so  when  it 
was  decided  that  sun  spots  affected  the  weather,  it  was 
doubtless  at  once  concluded  that  sun  spots  were  the 
cause  of  the  mysterious  industrial  depressions  for  which 
no  other  satisfactory  reason  could  be  given.  The  theory 
probably  originated  at  a  time  when  the  above  indications 
took  place  contemporaneously,  and  this  apparent  evi- 
dence of  its  correctness,  together  with  the  high  standing 
of  the  author,  probably  caused  its  acceptance  by  millions 
of  people.  They  regarded  it  as  an  elucidation  of  the 
fundamental  principles  underlying  an  economic  science, 
a  working  hypothesis  accounting  for  a  great  phenomenon; 
whereas  it  was  simply  a  false  conclusion  arrived  at  by 
an  unreliable  system  of  reasoning. 

Adolph  Wagner  thought  crises  resulted  from  some 
psychological  law  in  which  an  organic  defect  of  human 
nature  was  betrayed.  Many  have  thought  that  the 
periodicity  of  crises  came  from  the  procession  of  economic 
generations,  meaning  the  replacement  of  an  older  by  a 
younger  generation;  in  other  words,  the  rashness  of 
younger  business  men. 


ADVENT    OF    DEPRESSIONS          15 

Bonamy  Price,  Professor  of  Political  Economy  in  the 
University  of  Oxford,  in  an  article  published  in  "The 
Contemporary  Review"  of  April,  1877,  asserted  that  the 
one  and  only  cause  of  the  existing  economic  disturbance 
was  "overspending,  overconsuming,  destroying  more 
wealth  than  is  reproduced,  and  its  necessary  consequence, 
poverty. "  This  theory  seemed  plausible  and  satisfied 
many  for  a  time,  but  the  awkward  feature  about  claiming 
this  theory  is  that  industrial  depressions  for  a  hundred 
years  have  always  followed  periods  of  greatest  increase  in 
wealth  and  have  been  most  severe  in  the  countries  which 
have  made  the  greatest  progress  in  wealth,  —  not  those 
which  have  made  the  most  progress  towards  poverty. 

Gradually  it  was  realized  that  these  depressions  some- 
times came  when  there  was  no  apparent  cause  for  them; 
when  crops  were  large;  when  the  industries,  finances  and 
general  business  were  at  the  height  of  prosperity,  and  in 
the  face  of  conditions  which  seemed  to  insure  maximum 
prosperity  for  a  long  time  to  come. 

Each  depression  brought  out  a  new  crop  of  alleged 
causes,  each  with  sufficient  plausibility  to  satisfy  a 
portion  of  the  people,  and  enough  of  them  in  number  to 
satisfy  almost  every  one  for  a  time.  But  the  whole 
people  have  never  been  satisfied  by  any  one  of  the  alleged 
causes,  and  as  the  mystery  has  deepened  with  each 
decade,  so  the  interest  in  its  solution  has  increased. 

EFFORTS  MADE   TO   DISCOVER  THE   CAUSE 

As  years  have  passed,  many  of  the  learned  and  scientific 
men  of  different  nations  have  attempted  to  solve  the 
mystery.  Thus  the  number  of  alleged  causes  has  been 
greatly  increased,  but  in  all  the  efforts  to  discover  the 
cause  there  seems  to  have  been  no  recognition  of  the 
fact  that  such  depressions  were  the  natural  effect  of  a 
new  malady;  a  malady  generated  by  the  great  increase 
in  industrial  production,  just  as  new  maladies  were 
generated  when  the  great  increase  occurred  in  herding 
and  in  agriculture. 


16       INDUSTRIAL    DEPRESSIONS 

The  industrial  depression  of  1872  to  1878  was  of  such 
severity  and  duration  that  it  stimulated  the  study  of 
depressions  to  a  greater  extent  than  ever  before,  and  this 
study  has  since  been  prosecuted  by  many  national  gov- 
ernments, among  which  are  the  United  States,  Great 
Britain,  France,  Belgium,  Germany,  Switzerland,  Italy, 
and  Canada.  The  substance  of  the  reports  of  all  these 
government  commissions  is  that  the  cause  of  these 
mysterious  industrial  depressions  is  still  an  unsolved 
mystery. 

In  1885,  the  United  States  Bureau  of  Labor  was 
established  in  accordance  with  an  Act  of  Congress  ap- 
proved June  27,  1884,  and  the  late  Hon.  Carroll  D. 
Wright  was  appointed  Commissioner  of  Labor  by  the 
President.  This  bureau  devoted  its  first  year's  work  to 
the  investigation  and  collection  of  information  relating 
to  industrial  depressions.*  Its  report  was  published  in 
1886.  It  presents  a  voluminous  collection  of  facts  and 
opinions  which  are  of  great  value  in  the  study  of  industrial 
depressions.  The  facts,  because  they  constitute  a  basis 
from  which  to  draw  reliable  conclusions;  the  opinions, 
because  they  emanate  from  men  selected  from  every 
walk  in  life,  and  from  every  industrial  section  of  the 
globe.  These  facts  and  opinions  having  been  gathered 
from  so  wide  a  field  may  be  accepted  as  representing, 
approximately,  every  shade  and  variety  of  opinion.  In 
fact,  we  have,  as  a  result  of  the  work  of  the  Bureau  of 
Labor,  all  the  hundreds  of  opinions  reduced  to  a  concrete 
form,  and,  after  making  a  thorough  analysis  of  them,  one 
may  feel  that  the  field  has  been  substantially  covered. 

The  opinions  as  to  the  cause  of  industrial  depressions 
gathered  in  both  the  United  States  and  in  foreign  countries 
by  the  agents  of  the  Bureau  of  Labor  during  the  year 
devoted  to  this  work,  after  being  classified  and  alphabeti- 
cally arranged  by  that  bureau,  are  given  in  its  report 
under  no  less  than  135  different  heads. f  Appendix  C 

*  First  Annual  Report  of  the  Commissioner  of  Labor,  page  5. 
t/6id.,  page  76. 


ADVENT    OF    DEPRESSIONS         17 

is  a  full  copy  of  this  list.  The  opinions  given  by  the 
multitude  of  witnesses  who  testified  before  the  three 
government  commissions  appointed  by  the  two  houses 
of  Congress  during  the  decade  before  the  organization 
of  the  bureau,  as  classified  and  arranged  by  it,  are  given 
in  its  report  under  no  less  than  180  different  heads.* 
Appendix  B  is  a  full  copy  of  this  list.  These  alleged 
causes  range  all  the  way  from  the  most  trivial  to  the  most 
serious.  Some  of  them  require  no  evidence  to  convince 
one  of  their  groundlessness;  others  are  accepted  by  so 
large  a  number  of  people  that  nothing  short  of  a  thorough 
analysis  would  establish  their  untenable  nature,  while 
still  others  stand  out  against  all  the  tests  brought  to  bear 
upon  them. 

In  the  five  chapters  immediately  following  will  be 
found  analyses  of  all  the  alleged  causes  contained  in  the 
two  lists  named  above,  as  well  as  all  which  could  be 
gathered  from  other  available  sources. 

We  will  first  analyze  separately  the  chief  alleged  causes 
of  industrial  depressions;  that  is,  the  causes  which  are 
believed  in  by  the  largest  number  of  people.  Among  this 
class  are  such  as  Financial  Panics,  Overproduction,  Poor 
Crops,  Presidential  Elections,  Reaction,  Periodicity, 
Turning  Circulating  Capital  into  Fixed  Capital,  etc. 

*  First  Annual  Report  of  the  Commissioner  of  Labor,  page  61. 


CHAPTER  III 

"  FINANCIAL  PANICS  "   VS.    "  INDUSTRIAL   DEPRESSIONS  " 

MANY  people  believe  that  industrial  depressions  are 
the  result  of  financial  panics.  Many  of  them  are, 
but  when  they  result  from  this  cause  they  are  of  short 
duration  and  their  origin  is  always  apparent.  Long- 
continued  and  mysterious  industrial  depressions  result 
from  something  more  lasting  than  a  panic.  They  origi- 
nate from  something  wrong  within  the  industries  them- 
selves. They  are  independent  of  panics  and  come  whether 
panics  occur  or  not. 

The  causes  and  conditions  of  a  financial  panic  and  of 
an  industrial  depression  are  so  radically  different  that 
any  condition  which  is  a  direct  cause  of  one  cannot  by 
any  possibility  be  a  direct  cause  of  the  other.  When  an 
acid  is  mixed  with  an  alkali,  they  neutralize  each  other 
and  the  active  qualities  of  both  are  destroyed.  The 
causes  and  conditions  which  lead  up  to  an  industrial 
depression  are  just  as  opposite  and  antagonistic  to  the 
causes  and  conditions  which  lead  up  to  a  financial  panic 
as  are  an  acid  and  an  alkali. 

DIFFERENCES   BETWEEN   THE   CAUSES  AND   CONDITIONS   OF 
PANICS  AND   DEPRESSIONS 

Panic  is  defined  as  "a  sudden,  unreasoning,  over- 
powering fear,  especially  when  affecting  a  large  number 
simultaneously;  extreme  and  sudden  f right. "  *  A  "Fi- 
nancial Panic"  is  therefore  the  effect  produced  upon 
the  finances  of  a  country  by  sudden,  unreasoning,  and 
overpowering  fright. 

Depression  is  defined  as  "  a  state  of  dullness  or  inactivity; 

*  Standard  Dictionary. 
18 


PANICS    vs.    DEPRESSIONS  19 

a  protracted  season  when  business  falls  below  the  normal." 
"Industrial  Depression"  therefore,  means,  literally,  a  state 
of  dullness  or  inactivity  in  the  industries  of  the  country; 
a  protracted  season  during  which  the  production  of 
buildings,  furniture,  goods,  machinery,  railroads,  ships, 
etc.,  falls  below  the  normal. 

A  financial  panic  is  precipitated  by  sudden,  excited, 
and  imprudent  action.  An  industrial  depression  is  pre- 
cipitated by  deliberate,  thoughtful,  and  prudent  inaction. 

One  is  the  effect  of  mental  excitement,  which  results 
in  a  temporary  check  to  the  natural  flow  of  the  mediums 
of  exchange.  It  is  a  mental  disorder. 

The  other  is  the  effect  of  calm,  deliberate  considera- 
tion, which  results  in  reducing  the  rate  of  production  of 
materials  of  physical  wealth.  It  is  a  physical  disorder. 

A  financial  panic  is  an  acute  malady.  Its  beginning 
is  sudden,  vivid,  intense,  and  startling.  Its  chief  element 
is  fright.  It  paralyzes  finances  at  a  single  blow.  Each 
subsequent  step  in  its  course  is  an  alleviation.  Each 
day,  week,  or  month  shows  a  marked  recovery.  From 
its  nature,  as  well  as  from  its  intensity,  it  is  short-lived. 

An  industrial  depression  is  a  stubborn,  chronic  malady. 
Its  beginning  is  gradual  and  quiet.  It  commences  and 
goes  on  increasing  in  force  for  many  months,  unnoticed. 
Its  cause  is  silently  doing  its  fatal  work  while  actual 
business  is  increasing  by  leaps  and  bounds.  When  actual 
depression  appears,  its  cause  has  almost  ceased  to  exist. 
From  its  nature,  as  well  as  from  its  deep-seated  and 
gradual  growth,  industrial  depression  is  long-lived. 

A  financial  panic  is  usually  a  matter  of  a  few  months, 
weeks,  or  days.  An  industrial  depression  is  usually  a 
matter  of  one  or  more  years. 

A  financial  panic  may  be  compared  to  a  mob,  in  which 
a  great  number  of  excited  minds  work  upon  and  excite 
each  other  until  men  act  in  a  body  as  no  one  of  them  would 
act  if  left  to  himself.  Industrial  depressions,  on  the 
other  hand,  are  the  cumulative  results  of  the  deliberate 
and  thoughtful  decisions  of  individual  men. 


20        INDUSTRIAL    DEPRESSIONS 

These  two  calamities  and  their  causes  resemble  each 
other  in  no  way.  They  can  be  classed  together  only 
from  the  one  fact  that  the  results  of  each  have  a  disastrous 
effect  upon  business;  but  even  in  this  there  is  a  wide 
difference.  A  panic  has  an  effect  which  is  short,  exciting, 
and  a  temporary  disaster,  not  to  existing  material  wealth, 
but  to  the  documentary  representatives  of  wealth;  a 
loss  from  which  the  country  may  entirely  recuperate 
within  a  short  time.  The  other  is  a  compulsory  laying 
down  of  the  tools  which  produce  wealth,  by  a  vast  army 
of  wealth-creators;  a  loss  which  can  no  more  be  regained 
than  a  lost  day  or  a  lost  year  can  be  regained. 

There  is  no  doubt  that  a  financial  panic,  like  any  other 
great  disturbance,  such  as  war,  pestilence,  or  famine, 
may  have  a  depressing  effect  upon  the  industries  while  it 
lasts;  but  if  a  financial  panic  comes  when  industrial 
conditions  are  favorable,  then  the  industries  will  revive 
as  soon  as  the  panic  has  spent  its  force,  and  the  panic  will 
rightfully  be  considered  responsible  for  the  check  given 
to  the  industries.*  On  the  other  hand,  if  a  panic  takes 
place  when  the  industries  are  already  depressed  by 
internal  causes,  then  the  industries  will  not  necessarily 
revive  when  the  panic  has  ceased.  They  will  revive 
only  when  their  real  cause  has  ceased  to  have  its  natural 
effect.  The  public,  however,  will  almost  invariably 
identify  the  panic  as  being  responsible  for  the  prolonged 
depression,  simply  because  the  panic,  being  startling  and 
spectacular,  will  make  a  vivid  impression  upon  the  public 
mind.f 

A    PANIC    NEED    NOT    NECESSARILY   CAUSE    A   DEPRESSION, 
AND   VICE    VERSA 

The  causes  and  conditions  of  industrial  depressions 
and  financial  panics  being  entirely  different,  there  is  no 
logical  reason  why  an  industrial  depression  should  neces- 

*  Ample  illustrations  of  this  are  given  in  Chapter XIV, entitled  "Analysis 
of  the  Industrial  Depressions  from  1887  to  1897." 

t  Ample  illustrations  of  this  are  given  in  Chapter  XIII,  entitled  "Anal- 
ysis of  the  Industrial  Depressions  from  1833  to  1887." 


PANICS    vs.  DEPRESSIONS  21 

sarily  be  accompanied  by  a  financial  panic,  or  vice  versa, 
any  more  than  that  an  individual  suffering  from  one 
disease  should  on  that  account  contract  another  disease 
originating  from  a  different  cause.  At  the  same  time  it 
must  be  admitted  that  the  physical  weakness  caused  by 
one  disease  will  naturally  render  the  patient  more  liable 
to  succumb  to  the  second  disease,  if  exposed  to  the 
conditions  which  ordinarily  cause  the  second  disease. 
Just  so  with  financial  panics  and  industrial  depressions. 

Among  the  facts  established  and  emphasized  by  the 
government  commissions  appointed  to  investigate  in- 
dustrial depressions,  is  the  fact  that  financial  panics  have 
often  occurred  without  being  either  attended  or  followed 
by  industrial  depressions,  and  that  industrial  depressions 
have  occurred  without  being  followed  or  attended  by 
financial  panics.*  The  most  favorable  industrial  con- 
ditions will  not  prevent  a  financial  panic  if  financial 
conditions  are  sufficiently  deranged,  nor  will  the  most 
favorable  financial  conditions  prevent  an  industrial 
depression  if  the  industrial  conditions  are  sufficiently 
deranged. 

In  consequence  of  the  opposite  quality  of  the  causes 
of  these  two  calamities,  it  is  plain  that  the  two  sets  of 
causes  should  never  be  confounded,  yet  in  the  efforts 
made  to  discover  the  cause  of  industrial  depressions,  the 
causes  of  financial  panics  have  been  so  constantly  and 
persistently  cited  that  it  has  been  one  of  the  chief  ob- 
stacles, if  not  the  chief  obstacle,  to  success  in  discovering 
the  true  cause  of  depressions.  As  will  be  explained  later 
in  this  volume,  everything  connected  with  finances 
should  be  rigidly  excluded  from  any  consideration  in 
endeavoring  to  identify  the  cause  of  the  mysterious 
industrial  depressions  which  come  in  the  absence  of 
financial  disturbances.  To  admit  them  will  not  only 
confuse  the  searcher,  but  will  almost  certainly  defeat 
the  object  of  his  search. 

*  First  Annual  Report  of  the  United  States  Commissioner  of  Labor, 
page  15. 


CHAPTER  IV 

ANALYSIS  OF  THE  THEORY  OF  OVERPRODUCTION 

FROM  reports  of  the  commissions  appointed  by 
various  governments  to  investigate  the  subject 
of  industrial  depressions,  it  is  found  that  overproduction 
is  one  of  the  two  most  frequently  alleged  causes  for  these 
great  industrial  calamities.*  This  pernicious  belief  has 
not  only  obtained  lodgment  in  the  minds  of  mechanics 
and  workmen,  but  has  deluded  great  numbers  of  merchants 
and  manufacturers,  and  evidences  of  the  belief  are  con- 
stantly appearing  in  the  commercial  reviews  of  many  of 
our  ablest  newspapers.  It  is  a  plausible  theory,  and  has 
every  appearance  of  being  true,  but  analysis  shows  that 
the  appearance,  in  this  case,  is  not  in  accordance  with 
facts. 

The  political  economists  admirably  define  production 
as  follows:  " Objects  cannot  be  created  by  human 
means;  nor  is  the  mass  of  matter,  of  which  this  globe 
consists,  capable  of  increase  or  diminution.  All  that 
man  can  do  is  to  reproduce  existing  materials  under 
another  form,  which  may  give  them  a  utility  they  did 
not  before  possess,  or  merely  enlarge  one  they  may  have 
before  represented.  So  that  in  fact  there  is  a  creation, 
not  of  matter,  but  of  utility,  and  this  I  call  production 
of  wealth."  f  Wealth  is  produced  whenever  value -is 
added  through  any  act  or  any  process.  For  example, 
the  process  of  collecting  natural  products  is  called  farm- 
ing, or  mining,  or  fishing.  The  process  of  chemical  or 
mechanical  change  to  which  they  are  subjected  in  fitting 

*  First  Annual  Report  of  the  United  States  Commissioner  of  Labor, 
page  80. 

t  Jean-Baptiste  Say  — "Treatise  on  Political  Economy." 

22 


OVERPRODUCTION  23 

them  to  satisfy  the  various  wants  of  man  is  called  manu- 
facturing. The  act  of  transporting  and  placing  them 
within  the  reach  of  the  consumer  is  called  commerce. 
Each  act  or  process  which  adds  to  the  utility  and  ex- 
changeable value  of  matter  is  production  of  wealth. 
A  mahogany  log  in  a  West  India  forest  is  relatively  of 
small  value;  delivered  in  London  or  New  York  it  is 
relatively  of  large  value.  The  acts  of  chopping  it  down 
and  transporting  it  to  a  market  are  just  as  much  pro- 
duction of  wealth  as  the  voluntary  process  of  nature  in 
producing  the  tree.  Even  the  latter  is  not  a  production 
of  matter. 

Just  as  production  is  a  creation  of  utility  and  value, 
so  consumption  is  a  destruction  of  utility  and  value. 
Food  is  consumed  by  eating  it;  coal  is  consumed  by 
burning  it;  lumber,  stone,  brick,  and  iron  are  consumed 
by  using  them  in  the  manufacture  or  construction  of 
things  desired  by  man.  Houses,  ships,  machines,  cloth- 
ing, and  utensils  are  consumed  by  wearing  them  out,  or 
in  their  destruction  by  the  elements. 

Take  the  article  of  milk  as  an  illustration  of  the  pro- 
duction of  wealth.  Delivered  in  cans  on  the  farm,  it  may 
be  worth  two  cents  per  quart;  delivered  at  the  railroad 
depot  in  a  city,  it  may  be  worth  three  cents;  delivered 
to  the  merchant,  it  may  be  worth  four  cents;  delivered 
to  the  residences  of  the  citizens,  it  may  be  worth  ten  cents 
per  quart.  If  5000  quarts  of  milk  had  been  consumed 
on  the  farm,  it  would  have  been  a  consumption  of  $100 
in  value.  If  consumed  in  the  city  at  the  residences  of 
the  citizens,  it  would  have  been  a  consumption  of  $500 
in  value,  although  the  same  quantity  was  involved  in 
either  case.  By  the  process  of  farming,  $100  of  exchange- 
able value  was  produced;  by  the  acts  of  commerce,  $400 
of  exchangeable  value  was  produced.  Professor  Jevons 
says:  "Though  exchange  cannot  create  the  materials 
of  wealth,  it  creates  wealth,  because  it  gives  utility  to 
the  materials." 

In  short,  creation  of  value,  utility,  and  wealth  is  pro- 


24        INDUSTRIAL    DEPRESSIONS 

duction.  Destruction  of  value,  utility,  and  wealth  is 
consumption.  When,  therefore,  the  words  production  or 
consumption  are  used  in  this  volume,  they  must  be  under- 
stood to  mean  production  of  wealth  or  consumption  of 
wealth. 

PRODUCTION   IS   CREATION   OF   POWER  TO   BUY 

The  theory  of  overproduction  is  founded  upon  the 
belief  that  by  the  introduction  of  machinery,  improved 
methods,  etc.,  it  is  possible  for  man  to  produce  more  than 
man  is  able  to  buy,  or  more  than  man  desires  to  acquire. 
Let  us  analyze  these  propositions. 

First,  —  7s  it  possible  for  man  to  produce  more  than 
man  is  able  to  buy  ?  The  members  of  an  uncivilized  tribe, 
each  of  whom  produces  only  what  is  necessarily  consumed 
in  the  daily  maintenance  of  existence,  possess  nothing 
with  which  to  buy  the  products  of  others.  While  such 
conditions  continue,  wealth  and  buying  power  do  not 
exist  in  that  community.  But  when  each  member  of 
the  tribe  produces  something  of  value  in  excess  of  daily 
necessities,  something  desired  by  another,  then  each  has 
something  with  which  to  buy  the  products  of  others,  and 
the  production  of  wealth,  the  creation  of  buying  power, 
has  commenced  in  that  tribe.  In  other  words,  products 
are  buying  power.  Money  is  only  the  medium  by  which 
products  are  exchanged.  John  Stuart  Mill  says:  " Could 
we  suddenly  double  the  productive  powers  of  the  country, 
we  should  double  the  supply  of  commodities  in  every 
market;  but  we  should,  by  the  same  stroke,  double  the 
purchasing  power.  Everybody  would  bring  a  double 
demand,  as  well  as  supply;  everybody  would  be  able  to 
buy  twice  as  much,  because  every  one  would  have  twice 
as  much  to  offer  hi  exchange."  Professor  Cairnes  says: 
"  Purchasing  power,  in  the  last  resort,  owes  its  existence 
to  the  production  of  a  commodity."  Thus  we  see  plainly 
that  production  is  creation  of  power  to  buy. 

Money,  the  medium  of  exchange,  is  a  necessity  to 
modern  civilization,  but,  unfortunately,  its  use  sometimes 


OVERPRODUCTION  25 

obscures  or  distorts  industrial  facts.  Producers,  especially 
wage-workers,  are  apt  to  think  their  comforts  would  be 
doubled  if  their  pay  were  doubled.  To  analyze  this, 
let  us  suppose  that  at  a  given  time  the  pay  of  all  persons 
engaged  in  any  gainful  occupation  be  doubled,  while 
production  remains  the  same.  Is  it  not  clear  that  the 
cost  of  everything  would  be  doubled,  and  that  each  one, 
with  his  double  pay,  would  be  able  to  buy  only  as  much 
as  he  did  before?  On  the  other  hand,  let  us  suppose 
that  the  pay  remain  the  same  to  each,  and  that  at  a 
given  time,  by  improved  machinery  or  otherwise,  the 
productive  force  of  each  worker  be  doubled.  Is  it  not 
plain  that  the  cost  of  everything  would  be  reduced  one 
half,  and  that  each  one,  on  the  same  pay,  would  be  able 
to  buy  twice  as  much  as  before? 

The  only  practical  way  to  double  the  reward  to  workers 
is  to  double  their  products.  Larger  production  per  man, 
through  machinery  and  improved  methods,  accounts 
for  the  fact  that  workers  are  to-day  able  to  enjoy  comforts 
which  fifty  years  ago  would  have  been  impossible.  If 
money  were  eliminated,  many  of  the  popular  delusions 
would  not  exist.  All  would  understand  that  if  every 
worker  turned  out  twice  as  many  products  as  formerly, 
deposited  them  in  a  public  receptacle,  and  then  each 
carried  away  what  he  desired,  in  proportion  to  what  he 
had  deposited,  each  would  carry  away  twice  as  much, 
and  thus  have  twice  as  much  to  enjoy. 

W.  Stanley  Jevons  says:  "It  is  absurd  to  suppose 
that  people  can  become  rich  by  having  less  riches.  To 
become  richer,  we  must  make  more  riches."  Further- 
more, wealth  accumulates  only  when  production  exceeds 
consumption.  The  eighty-eight  billions  of  wealth  which 
existed  in  the  United  States  in  1900  was  simply  the  result 
of  an  accumulation  of  products,  —  an  accumulation  of 
eighty-eight  billions  of  exchangeable  values  —  eighty- 
eight  billions  of  buying  power.  Thus  we  see  that  the 
buying  power  not  only  preserves  an  equilibrium  with 
products,  in  theory,  but  that  they  are,  in  fact,  exactly 


26        INDUSTRIAL    DEPRESSIONS 

the  same  after  260  years  of  growth.  There  can  be  no 
year,  month,  or  day,  when  the  value  of  products  is  not 
exactly  equal  to  the  buying  power  which  exists  in  those 
products.  Hence,  it  is  not  possible  for  mankind  to 
increase  products  rapidly  or  greatly  enough  to  exceed  the 
ability  of  mankind  to  acquire  from  each  other  all  of  those 
products. 

THE   DEMAND   FOR  WEALTH   IS   LIMITLESS 

Second,  —  7s  it  possible  for  man  to  produce  more  than 
man  desires  to  acquire?  Professor  Jevons  says:  " There 
can  never  be,  among  civilized  nations,  so  much  wealth 
that  people  would  cease  to  wish  for  any  more.  However 
much  we  manage  to  produce,  there  are  still  many  other 
things  which  we  wish  to  acquire." 

There  is  no  limit  to  human  desire.  Every  man  who 
owns  a  factory,  a  house,  or  a  yacht,  would  like  to  own  a 
larger  or  better  one.  The  man  who  controls  a  bank 
would  like  to  control  a  number  of  banks  and  a  number 
of  trust  companies;  having  gained  these  he  would  like 
to  control  great  railroad  systems,  steamship  lines,  coal 
mines,  and  manufactories;  having  gained  these  hi  one 
country,  he  would  like  to  control  them  in  many  countries. 
Man's  desires  increase  with  his  success.  Whatever  one 
man  achieves  in  wealth  and  power,  others  will  desire  to 
achieve  and  will  strive  for.  The  average  wealth  of  the 
individual  in  this  country  has  increased  1000  per  cent, 
in  less  than  a  century,  and  no  man  is  yet  so  gorged  with 
possessions  that  he  desires  no  more.  If  hi  time  the  poorest 
hi  the  land  enjoy  the  luxuries  now  possible  only  to  the 
richest,  there  will  still  be  a  desire  for  more  wealth.  There 
are  hundreds  of  millions  of  people  in  other  lands  who 
have  not  even  commenced  to  produce  wealth.  Not 
one  human  being  in  twenty,  on  this  globe,  has  to-day 
what  might  be  called  the  reasonable  comforts  of  life.  If 
every  man  on  the  earth  owned  a  palace,  a  yacht,  a  pri- 
vate car,  and  all  corresponding  comforts  and  luxuries, 
he  would  still  wish  for  more  and  strive  for  more,  and 
there  would  still  be  more  to  gain. 


OVERPRODUCTION  27 

The  luxury  and  comfort  of  to-day  were  not  imagined 
a  century  ago,  and  perhaps  the  human  mind  to-day  does 
not  conceive  what  may  be  obtainable  in  the  way  of 
luxuries  and  comforts  a  hundred  years  hence.  The 
desire  to  gain  and  possess  wealth  and  power  is  a  natural 
instinct  implanted  in  man's  breast  by  his  Creator.  It 
is  this  instinct  which  lies  at  the  base  of  all  production. 
The  instinct  is  as  strong  in  a  nation  after  it  has  increased 
its  possessions  an  hundred  fold,  as  it  was  when  it  com- 
menced to  accumulate  possessions. 

If  it  is  impossible  for  man  to  produce  more  than  man 
is  able  to  buy,  or  more  than  man  desires  to  acquire,  then 
the  claim  of  overproduction  has  not  the  slightest  founda- 
tion to  rest  upon. 

When  people  see  unsold  products  piling  up  and  call 
it  overproduction,  they  are  basing  their  conclusions  upon 
synthetic  reasoning  (see  Chapter  IX),  which  for  the 
solution  of  such  questions  is  totally  untrustworthy; 
such  reasoning  will  lead  to  a  hundred  other  conclusions 
with  equal  facility.  One  step  taken  in  the  science  of 
analysis  would  have  resulted  in  the  discovery  that  the 
accumulation  was  in  consequence  of  a  falling  off  in  the 
production  of  things  in  which  these  accumulating  objects 
were  commonly  consumed,  so  that  the  accumulation 
was  in  reality  the  result  of  underproduction  and  not 
overproduction.  Another  step  in  analysis  would  have 
added  the  discovery  that  the  accumulating  objects  were 
chiefly  construction  materials,  and  such  things  as  are 
commonly  sold  to  furnish,  stock,  or  equip  newly  con- 
structed enterprises. 

The  difference  between  periods  of  prosperity  and 
periods  of  depression  is  chiefly  in  the  amount  of  manu- 
facturing and  construction;  or,  to  be  more  explicit, 
depression  is  chiefly  a  decrease  in  the  rate  of  production 
of  permanent  wealth,  such  as  buildings,  railways,  ships, 
goods,  materials,  etc.  This  decrease  is  not  caused  by 
lack  of  power  to  buy,  or  lack  of  desire  to  acquire,  but  by 
a  lack  of  desire  to  buy  at  the  high  prices  asked.  People 


28        INDUSTRIAL    DEPRESSIONS 

will  buy  or  construct  if  you  will  sell  at  prices  low  enough 
to  satisfy  them  that  they  will  gain  by  so  doing.  They 
will  stop  buying  or  constructing  when  prices  are  so  high, 
that  they  are  satisfied  they  will  lose  by  so  doing.  History 
shows  that  the  check  to  manufacturing  and  construction 
has  always  occurred  when  prices  were  abnormally  high, 
prosperity  greatest,  and  stocks  of  materials  abnormally 
low.  Let  us  illustrate  this  by  applying  the  test  to  a 
period  so  recent  that  the  truth  must  be  plain  to  every 
one. 

Between  September  1898  and  December  1899,  the  pro- 
duction of  iron  in  the  United  States  increased  from  a  rate 
of  10,750,000  to  a  rate  of  15,750,000  tons  per  annum. 
This  enormous  increase  of  production  caused  no  accumula- 
tion of  unsold  iron.  On  the  contrary,  the  stock  decreased 
from  630,000  to  124,000  tons.  —  Now  note  the  difference. 
During  the  eleven  months  which  followed,  the  production 
decreased  from  a  rate  of  15,750,000  tons  per  annum, 
to  a  rate  of  11,250,000  tons  per  annum.  The  stock 
of  unsold  iron  increased  to  720,000  tons,  and  immediately 
the  cry  of  overproduction  was  raised  all  over  the  country. 
What  an  absurdity  to  cry  overproduction  of  iron,  when 
the  country  was  actually  producing  less  iron  by  4,500,000 
tons  per  annum,  than  it  was  one  year  before  when  there 
was  no  accumulation!  The  accumulation  did  not  occur 
when  production  was  greatest;  it  occurred  when  pro- 
duction had  been  greatly  reduced.  It  was  the  falling 
off  of  manufacturing  and  constructive  enterprises  which 
caused  the  accumulation  of  iron,  as  it  did  also  the  accumu- 
lation of  all  other  construction  materials.  The  same 
truth  was  still  more  signally  demonstrated  in  the  first 
part  of  1903  and  1907  when  in  this  country  the  production 
in  each  case  increased  to  the  largest  rate  ever  known  up 
to  those  dates,  and  stocks  of  materials  decreased  to  the 
smallest  amounts  on  record. 

Each  period  marked  by  the  accumulation  of  unsold  goods 
in  this  country  for  a  century  has  been  a  period  of  small 
production.  History  shows  no  instance  in  which  a  period 


OVERPRODUCTION  29 

of  large  production  has  been  marked  by  the  accumulation 
of  unsold  goods.  It  is  the  unnatural  stoppage  of  production, 
in  one  or  more  branches  of  industry,  which  causes  the  accumu- 
lation of  the  materials  which  would  otherwise  have  been 
consumed  in  those  branches  of  industry.  Eleven  times  within 
ninety-four  years  this  unnatural  stoppage  of  maximum  pro- 
duction has  occurred  when  finances  were  most  prosperous, 
when  stocks  of  materials  were  at  the  lowest  point,  and  when 
prices  were  abnormally  high. 

The  small  stocks  caused  the  high  prices. 

The  high  prices  checked  manufacturing  and  construction. 

The  checking  of  manufacturing  and  construction  caused 
the  accumulation  of  materials. 

Underconsumption  is  another  absurdity.  Its  literal 
meaning  is,  "too  little  destruction  of  wealth."  A  certain 
amount  of  consumption  is  a  necessity  to  the  maintenance 
of  life  and  to  the  production  of  other  things  of  greater 
value.  But  all  consumption  in  excess  of  what  is  necessary 
to  bring  about  the  most  desirable  result,  is  waste.  What 
the  producers  of  a  country  need  is  large  sales  of  products, 
and  large  sales  are  most  certain  to  be  realized  when  every 
one  produces  largely.  But  to  waste  is  to  destroy  buying 
power. 

It  must  of  course  be  admitted  that  if  the  manufacturers 
of  all  the  various  things  made  in  the  country  were  to 
cease  turning  out  their  usual  product,  and  should  instead 
direct  all  their  capacity  to  the  production  of  chairs,  there 
would  be  an  overproduction  of  chairs  and  an  under- 
production of  all  other  articles;  but  it  is  not  admitted 
that  any  such  happening  is  possible,  or  that  any  absurd 
amount  of  any  article  will  be  thus  overproduced.  "The 
instinctive  desire  for  gain"  is  an  ever-present  influence, 
and  it  can  be  relied  upon  to  check  the  production  of  any 
article  as  soon  as  it  becomes  manifest  to  the  manufacturer 
that  more  of  that  article  is  being  produced  than  can  be 
sold  within  a  reasonable  time.  The  only  danger  is  that 
they  will  stop  too  soon ;  that  they  will  not  produce  enough. 
What  the  manufacturers  of  the  country  have  suffered 


30        INDUSTRIAL    DEPRESSIONS 

from  in  the  past  is  too  little  production,  not  too  much. 
We  need  no  better  evidence  of  this  than  a  glance  at 
Appendix  Z  and  the  table  on  page  204,  showing  that 
ten  times  during  the  last  seventy-five  years  the  great 
staple  of  pig  iron  has  advanced  in  price  from  84  per  cent, 
to  316  per  cent.,  and  that  these  abnormal  advances  have 
not  only  checked  construction,  but  have  put  up  the 
cost  of  producing  iron  from  50  per  cent,  to  100  per  cent, 
each  time.  Then  has  followed  another  long  period  of 
struggle  to  get  the  cost  price  down  to  the  constantly 
declining  selling  price,  and  this  movement  has  continued 
until  products  reached  figures  low  enough  to  stimulate 
another  boom. 

TEMPORARY   SURPLUS    PRODUCTION 

All  authorities  agree  that  general  overproduction  is 
an  impossibility,  though  many  admit  that  overproduction 
in  one  or  more  articles  frequently  occurs.  The  writer 
takes  issue  with  all  who  make  this  admission.  He 
claims  that  these  exceptions  are  not  cases  of  overpro- 
duction, but  simply  cases  of  temporary  surplus  produc- 
tion, and  that  temporary  surplus  production  is  not 
only  natural  and  desirable,  but  that  it  is  necessary  to 
man's  comfort  and  welfare.  Sometime  in  the  past, 
man  discovered  that  the  earth  yielded  its  food  products 
during  short  annual  periods  which  we  now  call  harvests, 
and  that  if  he  would  enjoy  these  products  continuously, 
he  must  during  these  periods  gather  and  store  up  of  the 
surplus  produced  sufficient  to  satisfy  his  wants  until  the 
next  harvest.  This  was  man's  first  lesson  in  nature's 
demonstration  that  temporary  surplus  production  was 
a  necessity  to  his  comfort  and  welfare,  and  was  not  over- 
production. Overproduction  is  a  term  which  should  never 
be  applied  to  the  economical  production  of  any  useful 
or  desirable  commodity  which  can  be  preserved  and 
carried  to  a  place  or  time  when  it  will  surely  be 
needed. 

Only  a  few  years  ago  there  were  seasons  when  the 


OVERPRODUCTION  31 

receipts  of  fruit  in  large  cities  were  sometimes  so  great 
within  a  few  days  and  the  prices  were  forced  so  low  that 
the  fruit  scarcely  brought  the  amount  of  the  freight,  and 
in  some  cases  large  quantities  went  to  decay  for  lack 
of  demand.  This  in  turn  discouraged  shipments,  and 
then  would  succeed  a  season  of  great  scarcity.  It  took 
experience  and  many  years  of  loss  to  teach  man  how  to 
rectify  these  irregularities,  but  finally  it  was  accomplished 
by  the  establishment  of  cold  storage  warehouses.  In 
these,  fruits  could  be  kept  in  a  temperature  at  which 
chemical  change  ceased,  and  thus  be  preserved  in  a  perfect 
condition  for  months.  The  result  is  that  the  prices  of 
such  products  are  now  more  uniform  and  reasonable; 
the  public  is  more  regularly  supplied;  the  profits  of  both 
producers  and  dealers  are  more  uniform  and  remunera- 
tive, and  as  a  result  both  the  production  and  consumption 
of  these  articles  have  been  greatly  augumented.  It  was 
temporary  surplus  production  of  fruit,  before  it  was 
brought  under  intelligent  control,  that  caused  the  irregu- 
larity. In  our  ignorance  we  called  it  overproduction. 
It  was  not  such.  It  was  an  object  lesson  which,  despite 
man's  slowness  to  appreciate  it,  unerring  nature  per- 
sisted in  thrusting  before  his  notice  until  he  discovered 
that  this  temporary  surplus  was  the  one  and  only  thing 
out  of  which  it  was  possible  to  create  regularity  in  both 
supplies  and  prices.  So  we  find  vegetables,  eggs,  butter, 
fish,  poultry,  and  many  other  perishable  articles,  getting 
the  benefit  of  an  intelligent  system  which  brings  regularity 
of  supply  out  of  irregularity  of  production.  As  man 
masters  the  art  of  dealing  intelligently  with  the  temporary 
surplus  production  of  each  article,  we  shall  hear  no  more 
of  overproduction  in  connection  with  that  article. 

Cases  of  temporary  surplus  production  are  a  necessity 
to  growth  and  progress,  and  will  only  cease  when  the  busi- 
ness of  the  country  ceases  to  increase  and  develop.  In 
colonial  times,  every  nail  produced  was  hammered  out 
by  hand.  Now,  by  the  aid  of  machinery,  one  man  can 
turn  out  a  thousand  times  as  many  nails  as  in  colonial 


32      INDUSTRIAL    DEPRESSIONS 

days.  During  the  interim,  the  temporary  inequalities 
between  the  supply  and  demand  have  many  times  required 
to  be  adjusted  to  each  other.  We  have  had,  in  other 
words,  frequent  temporary  surplus  production  of  nails; 
but  in  the  end  the  nails  have  been  consumed.  None 
have  been  destroyed  for  want  of  a  market,  and  hence 
we  have  had  no  overproduction  of  nails.  The  fact  that 
such  inequalities  have  always  occurred  and  will  continue 
to  occur,  simply  emphasizes  the  importance  of  taking 
the  greatest  possible  advantage  of  these  opportuni- 
ties of  temporary  surplus  production  when  they  do 
occur. 

In  some  tropical  countries  they  mine  gold  by  hydraulic 
power  and  must  do  it  in  daylight.  But,  owing  to  the 
climate,  the  streams  are  full  of  water  at  night  and  practi- 
cally dry  all  day.  So  long  as  the  people  lamented  the 
nocturnal  overproduction  of  water  they  produced  no 
wealth.  When  they  built  dams  to  store  the  water  at 
night,  they  provided  means  to  mine  by  day.  This  is  a 
striking  example  of  the  way  we  must  turn  to  profit  these 
seasons  of  temporary  surplus  production.  It  is  during 
periods  of  large  surplus  production  that  we  can  most 
economically  and  profitably  gather  reserve  stocks  of 
such  products  as  we  know  will  surely  be  in  demand 
during  periods  of  recurring  prosperity. 

In  the  reign  of  Louis  XVI  there  were  at  one  time,  in 
certain  departments  of  France,  such  abundant  harvests, 
that  wheat  was  almost  unmarketable,  while  in  other  and 
in  not  far  distant  sections  of  the  country  there  was  such 
a  lack  of  food  that  the  inhabitants  perished  of  hunger. 
General  Wilson,  in  his  " Study  of  China,"  cites  the  fact 
that  in  1877  over  ten  millions  of  people  died  from  starva- 
tion in  two  provinces  of  China,  while  great  abundance 
prevailed  in  other  parts  of  the  country.  It  is  quite 
likely  that  overproduction  was  claimed  in  these  sections 
of  France  and  China  where  food  was  so  superabundant. 
But  was  it  overproduction?  Was  it  not  rather  the  lack 
of  an  adequate  system  of  transportation? 


OVERPRODUCTION  S3 

Many  men  still  living  can  recall  years  when  grain  was 
so  abundant  at  the  time  of  harvest,  in  parts  of  the  United 
States,  that  it  would  not  sell  for  as  much  as  the  cost  of 
gathering  it,  and  great  quantities  were  allowed  to  decay 
in  the  field;  and  yet  before  the  next  harvest  grain  was  so 
scarce  that  it  brought  fabulous  prices.  Could  this  be 
called  overproduction?  Was  it  not  rather  a  lack  of  an 
effective  storage  system  for  preserving  the  temporary 
surplus  crops  until  needed? 

LESSONS  TO  BE  LEARNED  FROM  THE  FACTS  ILLUSTRATED 

While  it  is  true  that  overproduction  is  not  an  admissible 
proposition,  it  is  also  true  that  supply  and  demand  for 
any  one  thing  rarely  preserve  an  equilibrium  for  any 
great  length  of  time,  nor  can  it  be  expected  that  nature 
or  art  will  ever  arrive  at  such  a  condition  as  automatically 
to  provide  products  exactly  where  and  when  they  are 
needed.  But  by  creating  the  modern  system  of  trans- 
portation and  by  inaugurating  the  present  system  of 
cold  storage,  two  long  strides  have  been  taken  in  this 
direction.  These  strides  would  not  have  been  possible 
but  for  the  existence  of  temporary  surplus  production. 
Yet  another  long  stride  forward  will  be  taken  when  the 
producers  of  stable  commodities  like  coal,  iron,  lumber, 
cement,  steel,  tin,  copper,  lead,  etc.,  realize,  as  the  pro- 
ducers of  perishable  articles  have  done,  that  it  is  stability 
in  prices  which  will  give  them  greatest  wealth.  They 
will  then  take  logical  and  timely  measures  through  large 
temporary  surplus  production,  to  secure  this  stability 
in  prices.  In  the  same  manner  that  man  has  encour- 
aged the  temporary  surplus  production  of  agricultural 
products,  he  must  encourage  the  temporary  surplus  pro- 
duction of  construction  materials  and  other  durable 
manufactured  products.  As  he  husbands  the  temporary 
surplus  of  grain,  he  must  husband  the  temporary  surplus 
of  manufactured  materials. 

This  could  manifestly  be  done  with  iron,  coal,  lumber, 
cement,  etc.,  with  less  risk  and  more  certainty  of  success 


34      INDUSTRIAL    DEPRESSIONS 

and  profit  than  with  more  perishable  articles  such  as 
grain,  fruit,  vegetables,  etc.,  but  it  should  be  done  with 
the  same  degree  of  forethought,  preparation  and  fixed 
purpose.  It  would  not  do,  for  instance,  after  carrying 
products  through  a  part  of  the  dull  period  to  lose  confi- 
dence in  the  outcome  and  abandon  the  purpose  before 
the  boom  period  developed,  any  more  than  it  would  do 
for  the  farmer  to  abandon  the  cultivation  of  his  crop  in 
the  midst  of  the  cultivating  season. 

In  the  manufacturing  nations  we  have  had  eight 
depressions  followed  by  booms  within  seventy  years. 
As  long  as  the  conditions  which  bring  about  booms  are 
permitted  to  exist,  they  will  continue  to  occur;  hence 
the  ultimate  market  for  a  temporary  surplus  of  grain 
accumulated  during  harvest  is  no  more  certain  than  the 
ultimate  boom  market  for  construction  materials  accu- 
•  mulated  during  dull  years.  Seven  times  in  the  last 
seventy  years  iron  has  been  produced  in  dull  periods  and 
carried  for  boom  prices  in  Scotland,  and  always  with 
large  profits,  although  in  one  case  the  accumulation 
continued  for  fifteen  years  and  was  in  amount  equal  to 
over  twelve  months'  production.  In  this  extreme  case 
the  advance  in  price  was  78  per  cent.,  on  the  first  return 
of  prosperity,  and  109  per  cent.,  if  we  include  the  first 
substantial  boom.*  In  the  United  States  during  the  last 
sixty  years  the  average  advance  hi  price  during  boom 
periods  has  been  more  than  200  per  cent.,  and  yet  we  know 
of  but  few  cases  in  which  accumulations  have  been  made 
in  this  country,  with  due  preparation  and  the  distinct 
purpose  of  carrying  the  iron  to  secure  the  high  prices  of 
the  next  boom.  In  each  of  these  few  cases  the  business 
was  a  great  success  and  attended  by  enormous  profits. 
The  most  notable  was  that  of  David  Sinton,  of  Cin- 
cinnati, Ohio,  who  carried  iron  about  ten  years.  His 
profits  were  so  great  that  after  he  sold  out  on  the  boom 
of  1864  he  was  rated  as  the  richest  man  in  Ohio. 

*  From  37/1  in  1888  to  66/3  in  1890  and  to  77/10  in  1900.     Official 
Report  of  Royal  Exchange,  Glasgow,  Scotland. 


OVERPRODUCTION  35 

Money  made  in  this  manner  does  no  harm  to  any  one, 
and  is  a  blessing  to  a  great  multitude.  It  gives  employ- 
ment during  dull  years  to  many  who  would  otherwise 
suffer,  and  when  the  boom  years  come,  the  accumulated 
stock  pays  its  owners  a  handsome  profit  and  yet  goes 
far  toward  preventing  extreme  high  prices.  In  Scot- 
land, for  instance,  the  advance  in  price  caused  by  booms 
in  the  last  seventy  years  has  averaged  but  a  little  over 
50  per  cent,  as  against  more  than  200  per  cent,  in  the 
United  States.  It  is  these  excessive  advances  and 
declines  which  are  largely  responsible  for  so  many  failures 
in  iron-making  in  this  country. 

Our  boom  advances  are  so  enormous  that  they  usu- 
ally increase  the  cost  of  iron  production  from  50  per 
cent,  to  100  per  cent.,  and  the  heavy  losses  sustained 
by  producers,  while  these  fictitious  prices  melt  away, 
carry  many  of  them  into  bankruptcy.  A  Scotch  iron- 
master said  to  the  writer  a  few  years  ago,  on  the 
floor  of  the  Royal  Exchange  in  Glasgow,  hi  effect,  that 
the  American  iron-producers  take  such  short  views 
of  business  that  they  not  only  pave  the  way  for 
large  losses,  when  prices  go  down,  but  that  they  throw 
away  opportunities  for  reaping  large  profits  when  prices 
go  up. 

To  give  an  idea  of  what  rich  opportunities  of  this 
character  have  been  thrown  away  in  the  past,  let  us 
illustrate  what  might  have  been  done  hi  this  country 
between  1890  and  1899,  at  which  time  it  was  claimed 
that  pig  iron  was  being  produced  as  low  as  $6  per  ton 
in  Alabama,  and  $9  per  ton  in  Pennsylvania.  Let  us 
suppose  that  a  furnace  company  in  Alabama,  making 
100  tons  of  iron  a  day  at  a  cost  of  $6  per  ton,  had  kept 
in  blast  from  1890  to  1899,  inclusive.  Suppose  also  that 
they  had  piled  up  their  product,  carrying  it  at  an  expense 
of  50  cents  per  ton  per  annum  for  interest  and  storage, 
and  during  the  summer  of  1899  had  sold  the  entire  accu- 
mulation at  $12  per  ton.  The  result  would  have  been  as 
follows: 


36      INDUSTRIAL    DEPRESSIONS 

Cost  of  making  328,500  tons,  at  $6.00  per  ton  ...  $1,971,000 

Cost  of  storage  and  interest,  at  50  cents  per  ton  per  year  739,125 

Total  outlay $2,710,125 

Total  yield,  328,500  tons,  sold  at  $12.00  per  ton  ...  3,942,000 

Net  profit  remaining $1,231,875 

Has  any  furnace  company  ever  existed  in  the  United 
States  making  a  hundred  tons  of  iron  per  day,  and  selling 
it  at  the  current  market  prices  as  made,  which  could 
show  anything  like  such  a  profit  over  a  period  of  nine 
years?  Yet  we  have  figured  the  selling  price  at  $12  per 
ton  only,  whereas  the  market  price  rose  during  the  fall 
months  to  over  $18.50  per  ton.  If  sold  at,  say,  $18,  the 
net  profits  would  have  been  $3,202,875:  more  than  100 
per  cent,  net  profit  on  the  cost  price  of  the  entire  nine 
years'  product,  whereas  it  is  doubtful  if  any  furnace 
company  in  that  State  made  as  much  as  10  per  cent, 
profit  on  its  nine  years'  product  by  selling  at  the  market 
prices  as  produced. 

Now,  if  we  transfer  this  illustration  to  Bessemer  iron 
in  Pennsylvania  and  Ohio,  which  cost,  say,  $9  per  ton  to 
produce,  66  cents  per  ton  per  annum  to  carry,  and  was 
sold  at  $18  (the  market  price  went  to  $25),  we  shall  have 
the  following  result: 

Cost  of  making  328,500  tons,  at  $9.00  per  ton       ...  $2,956,500 
Cost  of  storage  and  interest,  at  66  cents  per  ton  per 

year 975,645 

Total  outlay $3,932,145 

Total  yield  of  328,500  tons,  at  $18.00  per  ton    .     .     .  5,913,000 

Net  profit  remaining $1,980,835 

Let  us  apply  this  illustration  to  the  entire  furnace 
interest  of  the  United  States  for  the  1890-1899  period. 
We  were  producing  and  consuming  in  1890,  in  round 
numbers,  9,000,000  tons  per  annum;  in  1897  we  were 
producing  and  consuming  about  the  same  amount,  but 
during  the  interim  many  of  the  furnaces  went  out  of 
blast,  and  the  production  and  consumption  fell  at  times 
to  a  6,000,000,  7,000,000,  and  8,000,000  ton-per-annum 
rate.  Now,  if  all  the  furnaces  which  were  running  in 


OVERPRODUCTION  37 

1890  had  been  kept  in  blast  until  1899,  and  the  con- 
sumption had  remained  what  it  was,  we  should  have 
accumulated  in  the  year  1891  a  surplus  of  about  1,000,000 
tons;  in  the  year  1893,  about  2,000,000  tons;  in  1894, 
about  2,500,000  tons;  in  1896,  about  500,000  tons- 
aggregating  a  total,  up  to  the  end  of  1897,  of  about  6,000,- 
000  tons.  For  illustration,  we  will  suppose  this  iron  cost 
$9  per  ton  to  produce,  that  the  interest  and  storage 
amounted  to  66  cents  per  ton  per  annum,  and  that  it 
was  carried  until  the  middle  of  1899.  The  result  would 
have  been  as  follows: 

Cost  of  making  6,000,000  tons,  at  $9.00  per  ton       .     .   $  54,000,000 
Cost  of  storage  and  interest,  at  66  cents  per  ton  per 

year 22,440,000 

Total  outlay $  76,440,000 

Total  yield  of  6,000,000  tons  sold  at  $18.00  per  ton  .     .     108,000,000 
Net  profit  remaining         $  31,560,000 

And  yet  we  have  figured  the  selling  price  at  $18  per  ton, 
whereas  for  six  months,  commencing  in  October,  1899, 
the  price  of  iron  averaged  about  $22  per  ton.  Had  the 
six-million-ton  surplus  been  sold  at  this  figure,  it  would 
have  brought  more  than  100  per  cent,  above  its  first  cost. 

These  illustrations  are  given  only  to  show  how  entirely 
safe  and  assuredly  profitable  it  is  to  accumulate  large 
reserve  stocks  in  long  dull  periods;  they  have  no  bearing 
upon  the  remedy  we  shall  later  propose,  since  that  remedy 
will  cause  the  fluctuations  in  price  to  be  very  much 
smaller  than  they  have  been  in  the  past,  and  will  render 
the  accumulation  of  large  stocks  during  dull  times  un- 
necessary. The  remedy  we  shall  propose  will  not  only 
prevent  the  prices  of  iron  and  all  other  construction  materials 
from  advancing  to  abnormally  high  figures,  but  will  be 
equally  effective  in  preventing  their  declining  to  abnormally 
low  figures.  Neither  of  these  desirable  results  could 
be  accomplished  practically  through  the  accumulation 
of  reserve  stocks,  simply  because  it  is  not  practical  to 
accumulate  or  carry  enough  to  have  any  substantial 


38      INDUSTRIAL    DEPRESSIONS 

effect  in  preventing  abnormal  advances.     Let  us  analyze 
this  matter. 

We  have  already  shown,  on  page  34,  that  an  accumu- 
lation of  iron  in  Scotland  equal  to  more  than  twelve 
months'  production  did  not  prevent  an  advance  in  price 
of  over  78  per  cent,  on  the  first  return  of  prosperity. 
Now  let  us  analyze  conditions  and  see  whether  it  would 
be  safe  and  profitable  to  carry  large  surplus  stocks  of 
pig  iron  in  the  United  States.  As  shown  on  page  37,  a 
temporary  surplus  production  of  about  6,000,000  tons 
might  have  been  accumulated  up  to  the  close  of  1897 
by  simply  keeping  the  product  of  the  furnaces  up  to 
9,000,000  tons  per  annum  from  1890  to  1897.  This 
would  have  been  about  500  per  cent,  more  than  had  ever 
been  accumulated  in  the  United  States,  would  have  been 
regarded  as  an  enormous  stock,  and  the  cry  of  over- 
production would  have  been  loud  and  long.  To  illus- 
trate what  short  views  we  take  of  this  business,  and  how 
utterly  we  fail  to  appreciate  what  large  and  small  stocks 
are,  will  be  a  simple  matter,  as  it  requires  but  few 
figures  to  show  that  if  we  had  held  a  stock  of  93,226,874 
tons  at  the  end  of  1907,  and  had  continued  to  produce 
at  the  rate  of  9,000,000  tons  per  annum,  it  would  all 
have  been  consumed  by  the  end  of  1907.  Here  are 
the  figures: 

Imaginary  stock  at  end  of  1897 93,226,874  tons 

Ten  years'  product  at  9,000,000  tons  per  annum     .  90,000,000    ' 

Total 183,226,874     " 

Consumption  ten  years  (1897-1907),       ....  183,226,874     "* 

These  figures  should  satisfy  any  one  that  to  produce 
and  carry  iron  through  long  dull  periods,  is  not  only  safe, 
but  much  more  profitable  than  to  sell  it  as  made,  and 
that  there  is  no  danger  that  this  condition  will  change 
as  long  as  the  country  continues  to  grow.  Dr.  William 
Kent,  in  his  review  of  the  iron  trade  for  forty-two  years, 

*  This  item  is  the  total  of  the  ten  years'  production,  as  given  in  the  reports 
of  the  American  Iron  and  Steel  Association. 


OVERPRODUCTION  39 

published  in  "The  Iron  Trade  Review7'  of  January  10th, 
1907,  gave  statistics  showing  that  the  rate  of  increase 
in  the  iron  production  of  the  United  States  for  forty- 
one  years  (1864-1905)  had  been  over  114  per  cent,  per 
decade,  and  that  for  the  last  decade  (1895-1905)  it  had 
been  over  143  per  cent.,  so  that  even  if  the  rate  should 
fall  as  low  as  100  per  cent,  per  decade,  we  have  a  pro- 
spective production  of  67,340,000  tons  per  annum  by  1920. 

Let  it  be  distinctly  understood  that  we  do  not  suggest 
any  such  absurdity  as  an  accumulation  of  93,000,000 
tons,  or  even  a  tenth  part  of  it;  the  figures  are  only  used 
to  show  that  a  stock  of  7,000,000  tons  at  the  end  of  1907 
might  have  been  accumulated,  and  it  would  not  have 
been  an  absurdity.  On  the  contrary,  it  would  have  paid 
a  handsome  profit  to  the  accumulators,  and  would  have 
prevented  prices  going  up  so  quickly  or  so  high.  It 
would  also  have  been  a  useful  object  lesson,  in  that  it 
would  have  called  more  marked  attention  to  the  rapid 
increase  in  consumption,  and  would  have  prompted 
earlier  and  more  extensive  efforts  to  increase  the  pro- 
ducing capacity. 

To  waste  the  labor  and  the  facilities  for  producing  the 
great  staples  to  the  full  capacity  in  dull  times,  when  it  is 
certain  that  they  will  be  in  great  demand  in  active  times,  as 
Talleyrand  says,  "Is  worse  than  a  crime,  it  is  a  blunder." 
This  is  true,  because,  whenever  scarcity  in  the  supply  of  any 
important  commodity  forces  the  price  of  that  commodity 
up  to  the  point  of  restricting  its  use,  it  is  simply  nature 
reminding  us  that  there  has  been  too  little  temporary  surplus 
production  and  husbanding  of  that  article  in  the  past. 
Indeed,  the  time  is  probably  not  far  distant  when  the 
cry  of  overproduction  applied  to  any  useful  article,  in 
any  country,  will  be  recognized  as  an  evidence  of  a  lack 
of  knowledge,  forethought,  and  wisdom  on  the  part  of 
the  people  of  that  country  in  taking  care  of  temporary 
surplus  products  when  they  can  be  had  for  use  during 
periods  when  they  otherwise  could  not  be  had. 

Both  nature  and  art,  undoubtedly  for  a  wise  purpose, 


40      INDUSTRIAL    DEPRESSIONS 

give  their  products  to  man  in  a  disproportionate  manner, 
not  to  be  wasted  but  to  be  cared  for  intelligently,  and  if 
he  does  not  so  care  for  them,  he  is  certain  to  suffer  for 
his  neglect.  Is  there  anything  in  nature  or  history  which 
does  not  teach  man  that  if  he  would  have  anything  in 
plenty  when  needed,  he  must  raise  and  gather  it  when 
it  can  best  be  produced?  Is  it  not  good  business  to 
gather  surplus  products  when  they  are  plenty  and  cheap 
and  hold  them  until  they  are  scarce  and  high?  Have 
any  ten  years  passed  in  the  recollection  of  men  now 
living,  in  which  the  people  of  this  country  have  not 
suffered  through  abnormally  high  prices  for  the  want  of 
an  adequate  supply  of  some  of  the  great  staples  which 
might  have  been  produced  and  stored  in  times  of  plenty? 
In  the  260  years  of  the  country's  growth,  has  any  one 
ever  heard  of  useful  manufactured  products  being  de- 
stroyed because  of  want  of  a  market?  Have  they  not 
all  been  consumed  in  time?  Is  not  this  proof  that  each 
one  of  the  overproduction  claims  put  forth  during  the 
last  two  and  one  half  centuries  has  been  rank  nonsense? 
Has  not  modern  society  simply  failed  to  grasp  one  of 
nature's  greatest  economic  truths? 

Since  the  dawn  of  civilization,  the  greatest  and  most 
powerful  nations  of  every  period  of  history  have  been 
those  which  have  recognized  to  the  fullest  degree  the 
importance  of  producing  and  storing  up  such  temporary 
surplus  productions  as  were  necessary  to  the  life,  defense, 
and  well-being  of  its  citizens.  The  nations  which  have 
crumbled  into  decay  in  times  of  peace  or  in  times  of  war 
are  those  which  have  failed  to  learn  this  great  truth 
which  nature  is  constantly  thrusting  before  man's  atten- 
tion. The  Scriptures,  from  Genesis  to  Revelation, 
abound  in  accounts  of  the  immense  storehouses  and  store 
cities  builded  and  maintained  by  the  great  nations  of 
ancient  times.  They  not  only  gathered  in  the  months 
of  harvest  sufficient  to  supply  the  people  until  the  next 
harvest,  but  they  stored  up,  in  years  of  plenty,  sufficient 
to  provide  for  years  of  famine.  This  wise  provision 


OVERPRODUCTION  41 

ranked  first  in  importance  in  all  temporal  affairs.  Is 
this  one  of  the  lost  arts?  Verily  what  Thomas  Arnold 
wrote  years  ago  is  still  true:  "What  is  called  ancient 
history  is  the  most  truly  modern,  the  most  truly  living, 
and  the  most  rich  in  practical  lessons  for  every  suc- 
ceeding age." 

CONCLUSIONS 

Thus  we  see  that  the  accumulation  of  unsold  goods  is 
not  an  evidence  of  too  much  production  of  that  kind  of 
goods,  but  of  too  little  production  in  other  lines  of  business 
which  ordinarily  consume  that  kind  of  goods;  that  the 
only  natural  limit  to  a  people's  power  to  acquire,  possess, 
and  enjoy  material  wealth  is  their  capacity  to  produce 
that  wealth;  that  products  are  in  themselves  buying 
power;  that  it  is  impossible  to  create  products  in  excess 
of  buying  power;  that  products  are  wealth*  that  wealth 
increases  in  the  proportion  that  production  exceeds 
consumption;  that  it  is  impossible  for  wealth  to  increase 
so  rapidly  or  so  largely  that  it  will  exceed  man's  desire 
to  possess  it  or  his  power  to  pay  for  it.  We  see  also  that 
if  the  country  is  to  have  the  maximum  of  prosperity  it 
must  have  the  maximum  of  production;  that  we  cannot 
become  richer  by  producing  less  riches;  that  there  cannot 
be  too  much  temporary  surplus  production  of  any  useful 
article  which  can  be  safely  stored  until  the  people  need 
that  article. 

The  difference  between  the  poorest  nation  on  the 
globe  and  the  richest  is  simply  the  natural  conditions 
resulting  from  the  difference  of  production.  Every  day 
of  idleness  is  a  permanent  and  irreparable  loss,  and  can 
no  more  be  replaced  than  the  lost  day  can  be  replaced. 
It  has  sacrificed  something  the  community  might  have 
possessed.  The  natural  condition  of  man  is  to  be  at 
work.  He  wishes  to  earn  in  order  that  he  may  buy. 
When  willing,  competent  workers  cannot  secure  employ- 
ment, some  external  or  internal  malady  has  deranged  the 
industrial  machinery,  and  that  wrong  is  working  injury 


42      INDUSTRIAL    DEPRESSIONS 

not  only  to  the  unwillingly  idle  individuals  but  to  the 
whole  country.  No  obstacle  should  be  allowed  to  stand 
in  the  way  of  man's  capacity  to  produce  to  the  utmost 
such  things  as  add  to  the  well-being  and  elevation  of 
mankind.  Nothing  should  be  allowed  to  stand  in  the 
way  of  man's  increasing  his  comforts  and  wealth  except 
the  natural  and  reasonable  limit  to  his  energies. 

There  is  no  greater  fallacy  than  the  claim  that  over- 
production is  the  cause  of  industrial  depressions.  Maxi- 
mum production  is  maximum  prosperity.  Depression 
is  distinctly  underproduction. 


CHAPTER  V 

POOR    CROPS  —  PRESIDENTIAL    ELECTIONS  —  REACTION  — 

PERIODICITY 

A  LARGE  portion  of  the  people  believe  that  poor 
crops  have  been  the  cause  of  many  of  the  indus- 
trial depressions  which  have  occurred  in  the  United 
States  during  recent  years.  This  belief  exists,  first,  for 
the  reason  that  poor  crops  were  the  cause  of  most  of  the 
depressions  which  occurred  in  this  country  previous  to 
the  nineteenth  century  and  that  they  continue  to  be  the 
cause  of  depressions  in  the  nations  which  are  still  chiefly 
agricultural;  second,  because  people  are  slow  to  realize 
any  change  in  every-day  affairs,  no  matter  how  great 
these  changes  may  be. 

In  July,  1900,  an  interview  appeared  in  one  of  the 
principal  dailies  of  London  from  a  well-known  New  York 
financier  in  which  he  asserted  that  the  crops  were  the 
chief  source  of  railroad  earnings  in  the  United  States. 
This  article  was  extensively  copied  in  the  papers  of  this 
country  without  calling  forth  criticism  or  correction, 
although  at  that  time  the  official  report  of  the  Interstate 
Commerce  Commission  for  the  fiscal  year  ending  June 
30,  1899,  had  been  widely  published  for  many  months, 
showing  that  the  products  of  agriculture  were  less  than  12 
per  cent,  of  the  total  tonnage  transported  by  the  railroads 
of  the  country.  We  quote  from  this  report  as  follows: 

Tonnage  reported 

Classes  of  as  originating  Per  cent,  of 

Commodities  on  line  aggregate 

Products  of  Agriculture    ....  50,073,963  11.33 

Products  of  Animals 13,774,964  3.12 

Products  of  Mines 227,453,154  51.47 

Products  of  Forests 48,122,447  10.89 

Manufactures 59,415,205  13.45 

Merchandise 19,844,735  4.49 

Miscellaneous 23,197,155  5.25 

Grand  Total 441,881,623  100.00 

43 


44      INDUSTRIAL    DEPRESSIONS 

Of  course,  everything  has  its  due  effect.  Whatever 
shortage  occurred  in  the  volume  of  a  year's  crop  in  any 
district  would  unquestionably  result  in  less  freight  to 
the  transportation  companies  of  that  district.  As, 
however,  the  railroad  tonnage  of  the  entire  agricultural 
products  of  the  country  is  but  11 J  per  cent,  of  the 
whole  tonnage,  such  shrinkages  as  occur  in  this  llf  per 
cent,  on  account  of  short  crops  must  necessarily  be 
small.  Compare  with  this  the  shrinkages  which  occur, 
during  an  industrial  depression,  in  the  tonnage  of 
mining  and  manufacturing  products,  which  comprise 
about  65  per  cent,  of  the  whole  tonnage  of  the  rail- 
roads. 

Whatever  shortage  occurred  in  the  selling  price  of  the 
nation's  crop  would  result  in  that  much  less  buying 
power  in  the  hands  of  the  proprietary  farmers.  But  is 
there  any  tangible  shortage  in  the  selling  value  of  a  small 
crop  as  crops  occur  in  juxtaposition  from  year  to  year? 
It  is  almost  an  axiom  that  small  crops  bring  big  prices. 
Let  us  analyze  this  matter.  The  corn  crop  of  1901  was 
only  a  two-thirds  crop  in  amount,  and  yet  it  brought 
38  per  cent,  more  money  than  the  large  crop  of  the  year 
before;  the  tobacco  crop  of  1907  was  in  quantity  11  per 
cent,  less  than  the  average  for  the  preceding  five  years, 
but  brought  16  per  cent,  more  money;  wheat  was  5  per 
cent,  less  in  quantity,  but  brought  6  per  cent,  more  money; 
oats  were  19  per  cent,  less  in  quantity,  and  yielded  24 
per  cent,  more  money.*  Boor  crops  affect  the  industries 
injuriously  at  times,  but  not  to  the  extent  generally 
believed,  and  not  often  in  the  manner  commonly  sup- 
posed; that  is,  it  is  not  "  because  the  farming  population 
has  less  money  with  which  to  buy  industrial  products." 
It  is  more  often  because  the  non-farming  population, 
being  obliged  to  pay  more  for  their  necessities,  have 
less  to  spend  upon  luxuries.  To  illustrate  this,  take  the 
corn  crops  of  1900  and  1901,  the  statistics  of  which  were 
as  follows: 

*  Letter  from  the  United  States  Agricultural  Department  to  the  author. 


POOR    CROPS 


45 


Value 

Value 

Year 

Area 
Planted. 
Acres 

Production. 
Bushels 

Farm 
Value 
Dec.  1 

per 
Bushel 
Dec.  1 

Yield 
per 
Acre 

of 
Yield 
per 

in  bu. 

Acre 

1900 

83,320,872 

2,105,102,516 

$751,220,034 

.357 

25.3 

$9.02 

1901 

91,349,928 

1,522,519,891 

921,555,768 

.605 

16.7 

10.09 

As  will  be  observed,  the  farmers  received  a  total  of 
$170,335,734  more  for  the  two-thirds  crop  than  they 
did  for  the  large  crop  of  the  year  before.  Statistics  show 
that  the  consumption  of  corn  per  capita,  was  24iVo 
bushels  in  1901,  against  24roV  in  1900.  It  was,  there- 
fore, the  consumers  of  the  corn,  who  used  about  the 
same  quantity  each  year,  and  who  were  obliged  to  pay 
the  farmers  60?  cents  per  bushel  hi  1901  as  against 
35iV  cents  in  1900,  who  had  one  hundred  and  seventy 
millions  of  dollars  less  money  with  which  to  buy  in- 
dustrial products.  This  is  not  an  exceptional  case. 
Compare  the  tables  in  "The  Statistical  Abstract  of  the 
United  States,"  of  the  three  chief  cereals  —  corn,  wheat, 
and  oats — for  the  forty-one  years  from  1866  to  1907,  and 
it  will  be  found  that  there  were  twenty-seven  instances 
in  which  a  short  crop  brought  more  than  the  large  crop 
of  the  year  before,  as  against  twenty-four  instances  in 
which  a  short  crop  brought  less  than  the  large  crop  of 
the  year  before.  The  total  gain  to  the  farmers  was 
$1,450,000,000  on  the  twenty-seven  instances,  against  a 
total  loss  of  $1,314,000,000  on  the  twenty-four  instances. 
This  shows  a  net  gain  to  the  farmers,  in  the  period  of 
forty-one  years,  of  $136,000,000  on  poor  crops,  over  good 
crops  of  the  year  before.  Then  again  there  were  only 
three  instances  in  the  forty-one  years  in  which  poor  crops 
of  the  three  cereals  came  the  same  year,  whereas  in 
many  cases  a  poor  crop  of  one  cereal  was  offset  by  a 
good  crop  of  another. 

This  analysis  indicates  that  there  is  little  difference 
in  the  amount  realized  by  the  proprietary  farmers  of  the 


46      INDUSTRIAL    DEPRESSIONS 

country,  as  a  whole,  whether  the  crops  which  closely 
succeed  each  other  are  large  or  small,  and  that  the  small 
crops  pay  them,  on  the  average,  a  little  more  than  the 
large  crops.  Note  the  facts,  that  the  two-thirds  corn  crop 
paid  them  38  per  cent,  more  money;  that  the  tobacco 
crop  of  11  per  cent,  less  paid  them  16  per  cent,  more 
money;  that  the  wheat  crop  of  5  per  cent,  less  paid  them 
6  per  cent,  more  money;  that  the  oat  crop  of  19  per  cent, 
paid  them  24  per  cent,  more  money. 

In  the  case  of  the  small  corn  crop  of  1901,  for  which  the 
consumers  paid  and  the  producers  received  $170,000,000 
more  money  than  they  did  for  the  large  crop  of  the 
year  before,  these  conditions  might  have  offset  each 
other  if  the  producers  had  expended  the  additional 
amount  they  received  for  the  same  class  of  articles  that 
the  consumers  were  obliged  to  deny  themselves,  but 
this  was  probably  not  the  case.  The  extra  income  of 
the  farmers,  instead  of  being  invested  in  general  goods, 
is  more  likely  to  be  used  in  paying  off  mortgages  or  in 
buying  "the  land  just  joining"  them,  so  that,  even  when 
a  short  crop  doe's  bring  more  money,  it  may  result  in 
less  general  trade  and  have  a  depressing  effect  to  that 
extent.  Mr.  James  J.  Hill,  hi  a  letter  to  the  author 
under  date  of  September  3,  1910,  writes  as  follows: 

"While  it  often  is  true,  as  you  state,  that  the  farmers  as  a  whole  receive 
as  much  money  for  a  short  crop  as  for  a  full  one,  this  does  not  prevent  in- 
dustrial disturbance.  The  farmers  whose  crops  are  short  must  restrict 
their  purchases,  while  those  who  receive  actually  more  cash  for  their  prod- 
uct do  not  add  proportionately  to  their  purchases.  On  the  other  hand, 
the  advance  in  the  price  of  food  products  and  the  cost  of  living  cuts  down 
the  purchasing  power  of  the  whole  non-agricultural  population.  As  a  rule 
they  make  the  necessary  economies  not  by  lowering  the  quantity  or  quality 
of  their  food,  but  by  doing  without  other  comforts  or  necessaries.  This 
restricts  the  demand  and  operates  precisely  as  a  falling  off  in  demand  for 
construction  material  to  produce  depression.  While  this  might  make  your 
statement  of  construction  cost  as  the  sole  cause  of  depression  less  sweeping, 
it  does  not,  of  course,  affect  the  validity  of  your  argument  as  a  whole." 

The  products  of  agriculture  have  not  only  ceased  to 
be  the  chief  source  of  income  to  our  twenty-nine  millions 


POOR    CROPS  47 

of  workers,*  but  the  difference  in  the  earnings  of  those 
engaged  in  agricultural  pursuits,  between  a  year  of  poor 
crops  and  a  year  of  good  crops,  is  remarkably  small. 
On  the  other  hand,  the  difference  in  the  earnings  of  those 
engaged  in  the  industries,  between  a  year  of  industrial 
prosperity  and  a  year  of  industrial  depression,  is  very 
great.  The  area  of  the  United  States  is  so  large  and  its 
climate  so  varied,  that  when  crops  are  poor  in  one  section 
of  the  country,  the  shrinkage  in  volume  is  almost  invari- 
ably offset  by  large  crops  in  some  other  section.  Then, 
too,  there  is  little  or  no  change  made  from  year  to  year 
hi  the  number  of  laborers  employed  upon  the  farms, 
except  to  keep  pace  with  the  change  in  population.  The 
demand  for  farm  products  being  regular,  the  preparations 
for  supplying  it  are  regular.  If  the  crops  are  poor,  it  is 
the  result  of  unfavorable  weather,  not  because  fewer 
laborers  were  employed  hi  raising  them.  Thus  the 
wages  of  farm-laborers,  as  well  as  the  profits  of  proprietary 
farmers,  is  remarkably  uniform. 

The  conditions  which  confront  those  engaged  in  the 
industries  are  entirely  different.  Statistics  show  many 
cases  in  which  the  building  of  railroads,  ships,  and  fac- 
tories is  doubled  within  a  year  or  falls  off  one  half 
within  a  few  months.!  We  see  also  communities  where 
a  large  number  of  residences,  factories,  etc.,  may  be 
built  one  year  and  none  the  next.  With  these  increases 
and  shrinkages  in  construction,  come  full  proportionate 
increases  and  shrinkages  in  revenue  to  the  industrial 
workers  and  proprietors.  There  are  no  such  equalizers 
as  uniformity  in  the  number  employed,  and  high  prices 
when  crops  are  small,  as  noted  in  agriculture.  It  is 
just  the  reverse,  for,  when  construction  falls  off,  a  propor- 
tionate number  of  construction  workers  are  discharged, 
and  the  wages  of  those  still  employed  are  usually  reduced. 
A  falling  off  of  20  per  cent,  in  the  business  of  the  nation 
means  the  discharge  of  one  fifth  of  the  workers.  A  check 

*  See  "American  Manufactures" — The  Americana, 
|  See  Appendix  L. 


48      INDUSTRIAL    DEPRESSIONS 

to  the  industries  which  resulted  in  the  loss  of  employ- 
ment to  five  out  of  each  twenty-nine  of  those  engaged 
in  the  gainful  occupations  of  the  nation  in  1900, 
would  have  cut  down  the  earnings  of  the  people  at 
the  rate  of  $3,000,000,000  per  annum,  an  amount 
nearly  equal  to  the  total  value  of  the  whole  agricul- 
tural crop  of  that  year.  The  largest  loss  which  has 
ever  occurred  in  this  country  in  consequence  of  a  poor 
crop  is  infinitesimal  in  comparison  with  the  loss  resulting 
from  the  discharge  of  one  out  of  five  of  the  industrial 
workers. 

If  large  crops  should  be  harvested  in  this  country  in 
the  same  season  that  small  crops  were  harvested  in  other 
countries,  the  farmers  of  this  country  would  undoubtedly 
receive  a  greatly  increased  revenue  through  the  larger 
exports  of  their  products.  But  often  our  large  crops  are 
offset  by  large  crops  abroad,  so  that  the  fortunate  con- 
ditions which  might  produce  a  greatly  increased  revenue 
are  rarely  enjoyed.  Nevertheless  our  farmers  have  on 
some  occasions  experienced  these  fortunate  conditions 
and  in  consequence  have  in  these  instances  realized 
greatly  increased  revenue.  But  the  largest  gain  ever 
realized  from  such  fortunate  crop  conditions  does  not 
compare  in  amount  with  the  gain  realized  from  the 
industries  during  a  year  of  industrial  prosperity  over  a 
year  of  industrial  depression.  Take,  for  example,  the 
year  1905,  when  the  industrial  production  was  about 
40  per  cent,  greater  than  in  1904;  this  increased  rev- 
enue amounted  to  a  difference  of  several  billions  of 
dollars. 

The  following  figures,  taken  from  "The  United  States 
Statistical  Abstract,"  show  how  little  influence  the  total 
value  of  farm  products  has  had  upon  the  total  volume 
of  the  industries,  as  far  back  as  the  government  has 
given  annual  crop  values  on  which  comparisons  can  be 
made,  f 

t  Previous  to  1900  the  government  has  gathered  crop  statistics  but 
once  each  decade. 


PRESIDENTIAL    ELECTIONS        49 


Year 

Total  Value  of  Farm 
Products  in  Dollars 

Production  of 
Pig  Iron 

Total  Bank 
Clearings 

1900 

$5,017,000,000 

13,789,000  tons 

$114,000,000,000 

1901 

5,317,000,000 

15,878,000 

84,000,000,000 

1902 

5,617,000,000 

17,821,000 

116,000,000,000 

1903 

5,917,000,000 

18,009,000 

113,000,000,000 

1904 

6,159,000,000 

16,497,000 

102,000,000,000 

1905 

6,309,000,000 

22,992,000 

140,000,000,000 

1906 

6,755,000,000 

25,307,000 

157,000,000,000 

1907 

7,488,000,000 

25,781,000 

154,000,000,000 

1908 

7,848,000,000 

15,936,000 

126,000,000,000 

1909 

8,622,000,000 

25,795,000 

165,000,000,000 

1910 

8,926,000,000 

27,303,000 

163,000,000,000 

As  will  be  observed,  the  industries  fell  off  largely  in 
1904,  as  compared  with  each  of  the  two  previous  years, 
in  both  of  which  the  value  of  the  crops  was  much  less; 
showing  that  the  small  crop  years  were  the  largest  indus- 
trial years.  The  same  relative  conditions  took  place  in 
1908,  as  compared  with  1906  and  1907. 

A  thorough  analysis  would  undoubtedly  show  a  uni- 
form sequence  of  poor  crops  and  industrial  depressions 
in  early  times  when  all  nations  were  chiefly  agricultural. 
A  thorough  analysis,  however,  shows  no  sequence  of 
poor  crops  and  industrial  depressions  in  the  five  industrial 
nations  since  they  became  large  manufacturers.  Analysis 
also  shows  that  poor  crops  have  not  been  contempora- 
neous in  these  five  nations,  during  recent  years,  while 
industrial  depressions  are  pronouncedly  so.*  It  is  quite 
clear,  therefore,  that  in  the  five  industrial  nations,  where 
these  severe  industrial  depressions  have  occurred,  the 
size  of  the  crops  has  not  been  the  cause  of  the  class  of 
depressions  which  we  call  " mysterious." 

PRESIDENTIAL  ELECTIONS 

Many  people  in  the  United  States  have  attributed 
industrial  depressions  in  the  past  to  presidential  elections. 

*  First  Annual  Report  of  the  United  States  Commissioner  of  Labor, 
page  290. 


50      INDUSTRIAL    DEPRESSIONS 

Undoubtedly  they  do  have  more  or  less  effect  upon  the 
industries.  Every  hour  of  tune  taken  from  the  produc- 
tion of  wealth  by  the  producers  of  the  country  and  given 
to  the  elections  has  its  due  effect  in  cutting  down  the  vol- 
ume of  agricultural  and  industrial  products  and  to  that  ex- 
tent reduces  the  wealth  and  buying  powers  of  the  people. 
Then,  again,  if  either  party  advocates  something  which 
the  people  believe  would  injure  business,  it  undoubtedly 
retards  business  until  the  threatened  danger  is  past. 
For  instance,  the  uncertainty  as  to  whether  the  future 
basis  of  the  currency  was  to  be  gold  or  silver,  which 
attended  the  presidential  campaign  of  1896,  affected  all 
business  during  the  campaign,  and  the  volume  of  the 
industries  declined  enormously;*  but  after  the  election 
in  November,  which  decided  the  question  in  favor  of 
the  gold  basis,  business  quickly  revived  and  before  the 
close  of  1897  was  greater  than  ever  before  in  the  history 
of  the  country,  f  Outside  of  this  instance,  the  presi- 
dential years  show  a  gain  in  the  volume  of  the  industries 
as  often  as  they  show  a  loss,  and  in  each  of  these  cases 
the  gain  or  loss  can  be  unmistakably  traced  to  causes 
more  potent  than  presidential  elections. 

If  presidential  elections  had  been  the 
cause  of  industrial  depressions,  then  there 
epsion  would  have  been  some  reasonable  connec- 
ilil  tion  shown  between  the  two,  and  there 

ill!  ~     "  would  have  been  some  sequence  in  these 
111?  recurrences;  but  nothing  of  the  kind  can 

ill!  ~  "  be  discovered  in  the  most  searching  anal- 
ill?  ysis  of  these  events.  This  can  best  be 
llll  illustrated  by  the  accompanying  diagram, 
lilt  The  intervals  between  presidential  elec- 
111?  "  "  tions,  as  every  one  knows,  have  always 
been  four  years,  while  the  intervals  between 
Its?  industrial  depressions,  as  will  be  observed 

1832 

1833  40  .,„„ 

1834  See  page  162. 

i|3|  f  Then,  too,  there  was  nothing  mysterious  about  this 

!837  depression,  for  every  one  knew  the  cause. 


REACTION  51 


accompanying  table,  have  been 
Depsrion  f°ur>  eight>  eleven,  ten,  ten,  ten,  six,  nine, 
eight,  three,  one,  one,  one,  four,  three,  and 
four  years  respectively.  Four  times  de- 
pressions have  come  one  year  after  elec- 
tions;  five  times  they  have  come  one  year 
before;  six  times  they  have  come  half-way 
between,  and  twice  they  have  come  on  the 
same  year.  This  shows  neither  sequence 
nor  connection.  The  only  noticeable  fact 
revealed  by  the  diagram  is,  that  during 
this  period  of  ninety-six  years  they  have 
come  on  the  same  year  only  twice,  as 
against  four,  five,  and  six  times  on  the 
intervening  years. 

When  a  presidential  election  affects  the 
industries  at  all,  it  is  either  a  short-lived 
effect,  like  the  case  of  1896,  when  the  cause 
is  known  to  every  one,  or  it  is  so  moderate 
in  effect  as  to  be  fully  covered  by  the  com- 
mon  remark,  that  they  are  "off  years.  " 
It  seems  quite  apparent,  therefore,  that 
the  long-lived  and  mysterious  industrial 
depressions,  which  have  occurred  in  the 
United  States,  have  not  been  the  result  of 
presidential  elections,  and  it  must  be  even 
more  apparent  that  presidential  elections 
were  not  the  cause  of  the  contemporaneous 
depressions  in  the  four  other  industrial 
nations. 


KEACTION 

Reaction  is  a  spontaneous  recovery  from 
some  forced  and  unnatural  condition.  A 
steel  spring  if  forced  out  of  its  natural  con- 
dition will  react  as  soon  as  the  force  is 
removed;  but  from  the  natural  flow  of 
water  downward  there  is  no  reaction.  If 


52      INDUSTRIAL    DEPRESSIONS 

industrial  prosperity  is  unnatural  and  industrial  depres- 
sion is  natural,  or  if  the  condition  of  a  maximum  number 
of  citizens  at  work  earning  and  producing  wealth  is  unnat- 
ural and  the  maximum  number  of  citizens  idle  is  natural, 
then  reaction  might  be  claimed  as  a  cause  of  industrial 
depression;  but  there  is  nothing  in  nature  which  points 
to  idleness  as  a  natural  condition  of  the  citizens  of  a  civ- 
ilized community.  Quite  the  reverse.  Even  in  a  condition 
of  complete  savagery,  man  must  do  some  labor,  for  the 
spontaneous  products  of  the  soil  cannot  be  enjoyed  by  him 
except  through  some  exertion  on  his  part.  Wild  fruits 
must  at  least  be  gathered,  and  if  one  would  have  clothing 
to  protect  him  from  cold,  or  shelter  to  protect  him  from 
the  elements,  he  must  labor  to  fit  nature's  products  to  his 
purposes.  Barbarism,  which  is  defined  as  "only  one 
remove  from  the  savage  state/1  "only  a  little  advance 
in  industry  and  art,"*  is  attained  only  as  a  consequence 
of  a  greater  amount  of  labor;  while  the  highest  state  of 
civilization  is  only  attained  by  the  maximum  amount  of 
labor.  Civilization  is  defined  as  the  result  of  "the 
multiplication  of  the  means  of  culture  and  enjoyment 
or  progress  and  achievement;  the  lifting  up  of  men 
mentally,  morally  and  socially."  f  Every  step  of  this 
progress  and  uplifting  results  from  labor.  Mental  and 
muscular  action  and  exertion,  because  they  are  natural, 
come  with  the  first  hour  of  the  infant's  life.  Compul- 
sory idleness  is  a  severe  punishment  at  any  age.  We 
permit  labor  in  our  prisons,  because  it  is  considered 
inhuman  and  unnatural  to  compel  human  beings  to  idle- 
ness. It  is  natural  for  even  the  animals  to  work  for  them- 
selves and  those  of  their  kind  dependent  upon  them. 

Civilization  not  only  results  from  labor,  but  it  increases 
the  natural  desire  for  labor.  The  United  States  is  a 
civilized  community,  hence  the  normal  and  natural 
condition  of  an  able-bodied  American  citizen  is  to  be  at 
work.  He  may  not  love  the  particular  employment  he 
is  engaged  in,  but  he  wishes  to  work  that  he  may  be  able 

*  Standard  Dictionary. 


REACTION  53 


to  earn  and  buy  for  himself  and  those  dependent  upon 
him.  Idleness  begets  want,  poverty,  crime,  disease,  and 
all  their  resultant  evils.  It  is  natural  for  the  normal 
man  to  shun  these,  and  he  works  to  escape  them.  Work 
begets  plenty,  comfort,  wealth,  honor,  happiness,  and 
health.  These  are  what  man  desires  for  himself  and 
those  he  loves,  and  it  is  natural  for  him  to  work  to  attain 
them. 

The  degree  of  civilization  attained  by  a  nation  is  in 
exact  ratio  to  the  proportion  of  its  citizens  who  are  able 
to  enjoy  the  natural  desire  for  mental  and  physical 
work.  In  the  year  1900,  the  United  States  had  a  popu- 
lation of  about  seventy-six  millions,  of  which  over  twenty- 

.e  millions  were  engaged  in  some  gainful  occupation, 
although  there  were  at  that  date  only  about  twenty-three 
millions  of  male  citizens  between  the  ages  of  fourteen  and 
sixty.  There  was  no  law  of  man  which  compelled  these 
people  to  work;  it  was  the  law  of  their  natures.  Broadly 
speaking,  if  any  one  of  those  twenty-nine  millions  of 
workers  had  lost  the  opportunity  to  work,  his  or  her 
greatest  anxiety  and  desire  would  have  been  to  secure 
another  opportunity. 

It  is  a  mistake  to  believe  that  when  all  the  workers 
are  employed,  production  is  being  overdone  and  reaction 
must  result.  Maximum  production  is  natural  in  a 
civilized  community.  There  are,  of  course,  "  drones  in 
every  hive,"  but  keep  the  industrial  machinery  free  from 
the  retarding  influence  of  all  external  or  internal  derange- 
ments, and  all  the  willing  workers  will  be  fully  employed. 
We  have  had  a  century  of  object  lessons  to  demonstrate 
this  truth.  We  have  witnessed  a  spontaneous  recovery 
from  every  one  of  the  industrial  depressions  of  the  past, 
after  the  retarding  conditions  were  removed;  but  never 
until  they  were.  A  vigorous  effort  was  made  to  bring 
back  full  prosperity  in  the  latter  half  of  1909,  but  it  was 
a  failure;  the  retarding  influences  had  not  all  been 
removed.  You  cannot  force  prosperity,  but  open  the 
way  for  it  and  it  will  come  of  itself.  The  unsuccessful 


54      INDUSTRIAL    DEPRESSIONS 

effort  made  in  1909  to  bring  back  full  prosperity  should 
prompt  us  to  find  out  what  retarding  influence  was  block- 
ing the  way. 

It  is  time  that  this  false  belief,  that  with  all  the  bread- 
winners at  work  we  can  produce  too  much  permanent 
wealth,  should  be  exploded  forever.  This  belief  seems 
to  be  as  common  to-day  as  it  was  a  hundred  years  ago, 
when  the  production  of  permanent  wealth  was  limited 
to  what  could  be  produced  by  a  small  part  of  the  10  per 
cent,  or  15  per  cent,  of  the  workers  not  required  in  agri- 
culture. During  the  last  sixty  years  we  have  not  only 
increased  the  percentage  of  manufacturing  and  mechan- 
ical workers  probably  600  per  cent.,  but  by  machinery 
have  added  vastly  to  their  individual  effectiveness.  What 
would  have  become  of  the  14,500,000  breadwinners  who 
were,  in  effect,  released  from  agriculture  during  the  last 
sixty  years,  if  there  had  been  any  truth  in  the  belief 
that  there  is  a  limit  to  the  production  of  permanent 
wealth?  The  enforced  idleness  of  a  vast  number  of 
willing  workers,  with  the  suffering  it  brings  to  them,  and 
the  loss  it  brings  to  the  whole  community,  is  an  unnatural 
condition  and  is  contrary  to  the  first  principles  of  reason. 

When  workers  are  thrown  out  of  employment  and 
deprived  of  the  opportunity  to  work  and  earn,  and  when 
maximum  production  gives  place  to  minimum  production, 
it  is  not  a  spontaneous  recovery  from  some  forced  and 
unnatural  condition;  it  is  an  unnatural  condition  forced 
by  some  external  or  internal  derangement. 

PERIODICITY 

The  theory  of  periodicity  in  poor  crops,  financial  crises, 
industrial  depressions,  wars,  pestilences,  earthquakes, 
and  other  occurrences  in  which  a  noticeable  coincidence 
as  to  time  of  repetition  has  occurred,  has  for  centuries 
had  many  advocates.  Clement  Juglar  regarded  the 
periodicity  of  ups  and  downs,  crises  and  liquidations  as 
an  economic  law,  the  action  of  which  was  more  certain 
than  the  action  of  the  law  of  supply  and  demand. 


PERIODICITY  55 

The  absurdity  of  these  claims  of  periodicity  as  applied 
to  industrial  depressions  is  emphasized  by  the  great 
diversity  in  the  length  of  the  cycles  claimed  by  different 
persons  for  the  same  things,  as  well  as  the  great  variety 
of  causes  assigned  for  them  by  the  respective  advocates. 
There  are  ups  and  downs  in  many  things,  hence  there  is 
nothing  remarkable  in  the  coincidence  of  an  equal  interval 
of  time  elapsing  between  the  occurrence  of  two  wholly 
unconnected  events,  and,  taking  into  consideration  the 
natural  desire  for  mystery,  it  is  not  surprising  that  these 
coincidences  are  seized  upon  and  claimed  by  some  one 
as  the  cause  of  a  coincident  depression. 

At  one  period  we  find  seven  years  claimed  as  the  time 
that  intervenes  between  poor  crop  cycles;  at  another 
time  a  fourteen-year  period  seems  to  have  taken  a  firm 
hold.  In  industrial  depressions,  ten  years  seems  to  be 
most  generally  claimed,  while  others  claim  the  periods  to 
be  nine  or  eleven  years. 

The  theory  of  Mr.  John  Mills*  was  that  the  cycles 
of  ups  and  downs  came  in  periods  of  ten  years,  divided 
as  follows: 

First.  Three  years  of  diminished  trade,  lack  of  work 
and  falling  prices. 

Second.  Three  years  of  active  trade,  slowly  rising 
prices,  and  fair  employment. 

Third.  Three  years  of  unduly  excited  trade  and 
rapidly  rising  prices. 

Fourth.  One  year  of  crisis. 

Compare  the  above  description  with  the  length  of 
periods  in  the  table  on  page  50  and  it  will  be  found  that 
although  there  were  three  periods  in  the  ninety-three 
years  between  1814  and  1907  when  the  intervals  of  time 
between  industrial  crises  were  ten  years  each,  there  were 
also  three  periods  in  which  the  intervals  were  one  year 
each,  three  when  they  were  four  years  each,  two  when 
they  were  three  years  each,  two  when  they  were  eight 

*  John  Mills  "On  Credit  Cycles  and  the  Origin  of  Commercial  Prices," 
printed  in  the  Manchester  Statistical  Society  Transactions  for  1867-1868. 


56      INDUSTRIAL    DEPRESSIONS 

years  each,  and  periods  when  they  were  six  years,  nine 
years,  and  eleven  years  respectively. 

Then  compare  the  above  description  with  Appendix  Z 
and  Appendix  L  and  note  how  remarkably  the  description 
differs  from  the  facts  in  all  particulars.  Instead  of  there 
being  three  three-year  and  a  one-year  division,  the  actual 
divisions  range  all  the  way  from  one  to  fifteen  years. 
Then  hi  the  second  division  of  Mr.  Mills,  instead  of  being 
attended  by  slowly  rising  prices,  the  periods  in  question 
have,  during  the  last  107  years,  been  almost  invariably 
attended  by  slowly  falling  prices.  See  years  1870  to 
1871,  1876  to  1878,  1888  to  1889,  and  1896  to  1898. 
Then  take  Mr.  Mills'  third  division.  Instead  of  the 
period  being  three  years  of  rapidly  rising  prices,  the 
periods  of  rapidly  rising  prices  are  only  from  four  to  twelve 
months,  and  for  the  whole  century  average  but  eight  and 
one  half  months. 

After  the  belief  in  cycles  of  uniform  length  had  been 
so  repeatedly  discredited  that  it  became  unpopular, 
compound  cycles  of  two  or  more  interims  of  time  came 
into  vogue,  the  most  notable  of  these  being  that  of 
Benner,*  in  which  he  claimed  that  from  1834  to  1875 
the  intervals  between  the  high  prices  of  iron  in  the  United 
States  (which  marked  booms)  had  been  eight,  nine,  and 
ten  years,  and  the  intervals  between  its  low  prices  (which 
marked  depressions)  had  been  nine,  seven,  and  eleven 
years.  He  also  predicted  that  this  order  in  its  advance 
and  decline  would  be  continued  hi  the  future,  as  he 
claimed  it  had  been  in  the  past.  Mr.  Benner's  book 
made  a  marked  impression  at  the  time,  as  iron  had  al- 
ready experienced  a  three  years'  decline,  during  which  it 
had  dropped  from  $54  to  $23  per  ton  for  No.  1  Foundry 
hi  Philadelphia.  It  was  then  below  the  cost  of  pro- 
duction, and  iron  men  were  confidently  predicting  an 
early  advance;  but  iron  continued  to  decline  during 
the  next  two  years,  1876  and  1877,  as  Benner  had  pre- 
dicted. This  made  a  profound  impression,  and  during 

*  Benner's  Prophecies,  page  45. 


PERIODICITY  57 

those  two  years  it  required  several  editions  of  his  book 
to  satisfy  the  demand.  The  following  year,  1878,  prices 
moved  directly  contrary  to  his  prediction,  and,  although 
prices  since  that  date  have  more  often  moved  with  his 
predictions  than  against  them,*  they  have  nevertheless 
been  against  them  repeatedly,  and  the  theory,  like  all 
other  theories  based  upon  periodicity,  has  been  discredited. 
Suffice  it  to  say,  the  periodicity  theory,  as  a  cause, 
has  for  three  hundred  years  or  more  been  harnessed  to 
a  great  variety  of  phenomena,  only  to  be  found  totally 
untenable  after  a  practical  time  test.  There  is  literally 
nothing  in  periodicity,  as  applied  to  the  industries, 
except  the  simple  fact  that  when  the  industries  increase 
from  their  lowest  point  to  their  highest  point,  and  in 
turn  fall  from  their  highest  point  to  their  lowest  point, 
a  period  of  time  necessarily  elapses.  That  lapse  of  time 
has  probably  never  been  exactly  the  same  in  two  instances 
and  probably  never  will  be.  If  it  should  be,  it  would 
simply  be  a  phenomenon  or  a  coincidence,  not  a  cause. 
Lightning  and  thunder  are  the  phenomena  of  a  storm, 
not  the  cause  of  the  storm. 

*  See  diagram  of  Benner's  Predictions  on  Appendix  Z. 


CHAPTER  VI 

TURNING    TOO    MUCH    CIRCULATING    CAPITAL    INTO    FIXED 

CAPITAL — A  MENTAL    DISEASE THE    WORLD    ALREADY 

PROVIDED   WITH    ECONOMIC    TOOLS 

MANY  prominent  authorities,  particularly  among 
bankers  and  economists,  believe  turning  too  much 
circulating  capital  into  fixed  capital  to  be  one  of  the 
chief  causes  of  the  mysterious  industrial  depressions 
which  come  in  the  absence  of  any  apparent  cause. 

The  mistaken  beliefs  upon  this  subject  and  the  sub- 
ject of  overproduction  are  probably  the  most  harmful 
of  all  the  popular  delusions.  The  harm  from  the  former 
comes  chiefly  from  the  banking  community,  when  they 
look  with  alarm  upon  the  large  amount  of  money  being 
put  into  construction  of  railroads,  buildings,  and  other 
objects  of  fixed  wealth  and  draw  closer  lines  on  loans 
for  such  purposes.  By  such  acts  they  are  unconsciously 
using  the  most  effective  means  in  their  power  to  dwarf 
prosperity.  The  harm  from  the  latter  comes  chiefly 
from  the  trades-unions  through  their  mistaken  belief 
that  there  is  only  a  certain  amount  of  work  to  be  done, 
and  that,  by  restricting  the  amount  turned  out  by  each 
worker,  all  will  be  employed  for  a  longer  time. 

How  the  mistaken  theory  that  too  much  circulating 
capital  was  at  times  turned  into  fixed  capital  ever  gained 
lodgment  in  the  minds  of  men  is  hard  to  imagine.  Per- 
haps it  dates  back  to  periods  when  it  required  nearly 
all  of  the  workers  to  provide  the  necessities  of  life,  and 
hi  those  days  there  were  instances  when  a  portion  of 
those,  whose  labor  was  necessary  to  supply  the  necessities, 
gave  their  time  to  the  production  of  permanent  wealth. 
In  such  instances  the  volume  of  necessities  was  not  suflfi- 

68 


CIRCULATING     CAPITAL  59 

cient  for  the  maintenance  of  the  people,  and  they  were 
obliged  to  import  food  or  suffer  for  the  want  of  it. 

To  say  that  men  do  not  work  for  money,  but  for 
commodities,  simply  because  they  exchange  money  for 
commodities,  and  that  therefore  these  commodities  are 
circulating  capital  is  ignoring  important  facts.  Sometimes 
they  exchange  money  for  a  hair-cut  or  a  Turkish  bath. 
Does  that  make  hair-cuts  and  Turkish  baths  circulating 
capital? 

The  persistent  efforts  of  some  economists  to  elucidate 
this  false  theory  by  denominating  commodities  as  the 
circulating  capital  of  a  country,  is  simply  prostituting 
science  and  distorting  facts.  It  is  going  back  to  bar- 
barism in  an  attempt  to  illustrate  civilization.  It  is 
even  worse,  for  commodities  were  not  circulating  capital 
even  then.  They  were  nothing  more  than  the  materials 
of  barter.  When  barter  was  the  only  means  of  securing 
something  which  was  desired,  it  was  because  there  was 
no  circulating  capital  in  existence.  When  circulating 
capital  was  introduced,  something  new  was  created.  It 
was  a  step  in  civilization.  It  was  a  powerful  and  active 
something,  and  the  revolution  it  has  brought  about  in  the 
exchanges  of  real  estate,  groceries,  dry  goods,  etc.,  cannot 
be  elucidated  by  setting  aside  actual  circulating  capital 
and  borrowing  groceries,  dry  goods,  etc.,  as  a  substitute. 
When  we  see  a  great  corporation  preparing  to  build  a 
railroad  by  collecting  a  huge  quantity  of  flour,  meat, 
molasses,  etc.,  with  which  to  pay  its  workers,  we  shall 
be  ready  to  entertain  the  theory  that  commodities  are 
circulating  capital. 

ANALYSIS    OF    THE    FACTS 

Real  circulating  capital  (money  and  credit)  performs 
such  a  large  share  of  modern  business,  and  its  function 
is  so  different  from  that  of  any  other  thing,  that  one  cannot 
illustrate  modern  business  by  substituting  for  it  some- 
thing which  has  an  entirely  different  function.  When 
the  business  men  of  a  nation  prepare  themselves  for  the 


60      INDUSTRIAL    DEPRESSIONS 

creation  of  great  constructive  enterprises,  they  do  it  by 
accumulating  money  or  providing  credit  balances  in  banks. 
Part  of  this  may  be  done  by  borrowing  on  their  posses- 
sions. This  is  done  more  largely  upon  their  buildings, 
railroads,  ships,  etc.  (so-called  fixed  capital),  than  it  is 
upon  their  groceries,  dry  goods,  tools,  etc.  (so-called 
circulating  capital).  Commodities  are  actually  no  more 
circulating  capital  than  are  buildings  and  machinery. 

In  order  to  analyze  the  theory  that  turning  circulating 
capital  into  fixed  capital  is  the  cause  of  industrial  depres- 
sions, we  will  suppose  that  Mr.  A.  has  $1,000,000  in 
real  circulating  capital.  He  builds  with  it  a  block  of 
residences.  At  the  end  of,  say,  twelve  months  he  has 
completed  and  paid  for  them.  Mr.  A.  has  thus  turned 
his  circulating  capital  into  so-called  fixed  capital.  Mr. 
A.  has  the  block  of  residences,  and  the  circulating  capital 
is  in  the  hands  of  the  people  who  furnished  the  labor,  the 
materials,  and  the  skill  to  erect  the  block  of  residences. 
If,  when  these  workers  received  their  pay,  it  was  their 
custom  to  destroy  it,  there  would  be  some  reason  for 
alleging  this  as  a  cause,  but  such  a  disposition  of  the  cir- 
culating capital  never  occurs.  Not  one  dollar  of  it  is 
destroyed.  It  is  simply  transferred  into  other  hands  and 
is  being  circulated  by  them  and  others  to  whom  it  is  in 
turn  paid.  The  country  at  the  start  had  only  the  capital; 
at  the  finish  it  has  the  capital  plus  the  buildings.  To 
illustrate  further,  let  us  suppose  there  are  ten  thousand 
Mr.  A's  in  one  community,  not  all  building  residences, 
but  each  producing  something  needed;  the  result  would 
be  business  prosperity  and  growth  of  wealth  in  that  com- 
munity. Imagine  another  community  where  the  ten 
thousand  Mr.  A's  are  holding  their  circulating  capital 
or  paying  it  out  only  for  the  necessities  of  life,  and  you 
have  a  community  suffering  from  industrial  depression. 
In  such  a  community  there  is  absolutely  no  increase  in 
wealth.  Its  inhabitants  are  simply  existing,  and  at  the 
end  of  one  hundred  years  they  will  be  no  richer. 

Will  any  person  claim  that  this  action  of  Mr.  A's  in 


CIRCULATING    CAPITAL  61 

putting  up  the  block  of  buildings  was  a  drawback  to  the 
prosperity  of  the  country,  or  imperilled  its  prospects  in 
any  way?  Was  it  not  better  in  every  way  that  these 
workers  should  be  employed  and  not  idle?  If  they  had 
remained  idle,  they  would  probably  have  continued  to 
live;  and  to  live,  they  must  in  some  way  have  procured 
and  consumed  the  necessities  of  life.  If  idle,  they  would 
have  reduced  the  wealth  of  the  country.  As  it  was,  they 
added  to  the  wealth  of  the  country.  Would  the  erection 
of  this  block  of  buildings  have  intensified  an  existing  de- 
pression, or  have  tended  to  create  one  which  did  not  exist? 

When  real  circulating  capital  is  transferred  in  payment 
for  some  fixed  product,  that  capital  is  not  deprived  of  any 
of  its  natural  functions.  The  individuals  who  parted 
with  it  may,  for  the  time,  have  parted  with  their  individ- 
ual power  to  continue  production,  but  the  individuals 
who  secured  that  capital  acquired  the  power  which  the 
others  lost.  The  power  of  the  community  to  produce  is 
as  great  as  before,  and  it  matters  little  into  what  class  of 
the  breadwinners'  hands  the  capital  falls,  as  in  due  time 
substantially  all  of  it  finds  its  way  back  into  the  regular 
channels  of  business,  where  it  is  again  just  as  available  as 
before. 

When  an  industrial  depression  comes,  it  is  not  because 
of  any  initial  check  to  the  production  of  the  commodities 
which  are  included  under  the  head  of  circulating  capital. 
The  stocks  of  vegetables,  groceries,  dry  goods,  furnishings, 
utensils,  etc.,  which  come  under  that  head  are  usually 
abundant.  It  is  because  of  the  initial  check  to  con- 
struction which  comes  under  the  head  of  fixed  capital. 

This  bugaboo  about  turning  circulating  capital  into 
fixed  capital  is  simply  a  delusion.  The  people  who  have 
turned  most  circulating  capital  into  fixed  capital  have 
simply  been  most  industriously  employed  producing 
wealth  instead  of  wasting  their  time  in  idleness.  Stop 
turning  circulating  capital  into  fixed  capital  and  you  stop 
growth  in  wealth.  Pick  out  the  town  or  city  where  there 
has  been  the  least  progress  and  improvement,  and  you 


62      INDUSTRIAL    DEPRESSIONS 

have  the  locality  where  there  has  been  the  least  "  turning 
of  circulating  capital  into  fixed  capital." 

Pittsburg  is  the  greatest  iron  and  steel  market  in  the 
United  States,  and  one  of  the  greatest  centers  of  circula- 
ting capital.  Why?  Because  of  the  large  amount  of  cir- 
culating capital  which  in  years  gone  by  has  been  turned 
into  fixed  capital  in  the  shape  of  furnaces,  mills,  and  steel 
plants.  It  is  the  investments  in  fixed  capital  which  draw 
business  to  any  locality  and  hold  it  there.  Wise  invest- 
ments in  fixed  capital  are  the  surest  means  of  increasing 
the  amount  of  circulating  capital  in  any  community  or 
country. 

It  is  not  necessary  for  the  public  to  give  one  moment's 
thought  to  the  production  of  necessary  commodities  or 
so-called  circulating  capital.  That  is  a  part  of  economics 
which  takes  care  of  itself  almost  automatically.  There 
is,  for  example,  no  more  intricate  system  connected  with 
the  supply  of  necessities  than  the  production  and  placing 
of  fresh,  sweet  milk  upon  the  breakfast  table  of  four 
millions  of  people  in  the  city  of  New  York  three  hundred 
and  sixty-five  mornings  in  the  year,  yet  not  one  states- 
man or  economist  has  been  obliged  to  give  an  hour's 
thought  to  this  intricate  problem.  The  business  has 
regularly  grown  with  the  demand.  Reliable  and  regular 
demand  prompts  reliable  and  regular  supply.  But  it  is 
necessary  that  the  earnest  thoughts  of  the  influential  men 
of  the  nation  should  be  given  to  the  problem  of  putting 
an  end  to  the  unnatural  and  disastrous  checks  which  are 
allowed  to  come  to  the  production  of  fixed  capital.  Keep 
the  production  of  fixed  capital  up  to  the  maximum  capacity 
of  the  country  j  and  industrial  depressions  will  not  exist. 

Stated  in  different  language,  "turning  too  much  cir- 
culating capital  into  fixed  capital"  means  simply  produ- 
cing too  much  permanent  wealth  and  too  little  perishable 
wealth,  which,  as  a  cause  of  industral  depressions,  is 
wholly  untenable.  The  true  theory  of  the  wealth  of  the 
nations,  as  well  as  of  individuals,  lies  in  the  art  of  living 
upon  the  smallest  amount  of  so-called  circulating  capital 


A    MENTAL    DISEASE  63 

consistent  with  the  well-being  of  the  people,  and  creating 
the  largest  amount  of  so-called  fixed  capital. 

A    MENTAL    DISEASE 

Mr.  N.  C.  Fredericksen,  late  Professor  of  Economics 
and  Finance  in  the  University  of  Copenhagen,  was  an 
enthusiastic  believer  in  the  theory  that  industrial  depres- 
sions were  "due  to  waves  hi  the  minds  of  men,"  that  they 
were  the  result  of  " mental  process."  He  said:  "I  like  to 
compare  the  movements  of  prices  with  the  waves  of  the 
sea."  In  speaking  of  the  great  ups  and  downs  of  prices, 
he  writes:  "The  total  movement  is  formed  from  the 
mental  situation  of  the  human  world,  and  it  is  this  that 
has  created  sometimes  a  too  high,  sometimes  a  too  low 
level  of  prices.  When  there  is  rather  a  regular  alternation 
of  economic  excitement  and  depression,  the  real  reason  is 
that  such  an  alternation  seems  to  be  a  necessity  for  the 
human  community."  The  same  views  seem  to  have  been 
entertained  by  John  Mills,  Courcelle  Seneuil,  the  French 
economist,  and  by  William  Langton,  the  Manchester 
banker.  Vilfredo  Pareto  thought  the  mental  waves  a 
necessity  to  man,  and  compared  them  with  the  necessity 
of  alternating  temperature  to  plant  life,  in  which  even  the 
daily  changes  must  be  kept  up  in  the  hothouse,  without 
which  the  plants  would  die.  When  we  realize  that  these 
are  but  a  few  of  the  many  forms  in  which  this  aspect  of 
the  subject  has  been  presented  by  intelligent  men,  we 
can  appreciate  the  unlimited  scope  of  the  vagaries  and 
wild  fancies  of  the  human  mind. 

The  increase  and  decrease  of  the  industries  are  the 
direct  effect  of  man's  will,  influenced  by  his  judgment  as 
to  what  he  believes  to  be  for  his  material  interest.  While 
it  is  true  that  his  will  is  directed  by  his  mind,  that  mental 
decision  is  no  more  the  result  of  mysterious  mental  waves, 
when  he  wills  to  start  or  wills  to  stop  an  industrial  opera- 
tion, than  when  he  buys  something  he  wishes  if  the  price 
be  reasonable,  or  goes  away  without  buying  if  he  consider 
the  price  too  high.  There  is  no  more  mystery  in  the  man's 


64      INDUSTRIAL    DEPRESSIONS 

motive  and  act  in  connection  with  the  industrial  opera- 
tion, than  there  is  in  his  motive  and  act  in  connection 
with  the  wished-for  article.  One  is  as  natural  and  simple 
as  the  other.  Both  are  purely  business  decisions  governed 
by  business  motives. 

THE    WORLD    ALREADY    PROVIDED    WITH    ECONOMIC    TOOLS 

After  each  season  of  great  prosperity  in  the  nations, 
succeeded  by  a  mysterious  industrial  depression,  there 
comes  a  mistaken  belief  on  the  part  of  many  that  the  in- 
dustrial nations  are  now  so  completely  supplied  with 
the  tools  and  facilities  of  civilization  that  the  future  must 
necessarily  be  confined  chiefly  to  maintenance  and  repairs. 

Georges  de  Laveleye,  editor  of  the  "Moniteur  des 
Inte*rets  Mat  Uriels,"  of  Brussels,  in  writing  of  the  indus- 
trial depression  which  took  place  in  Belgium  and  other 
European  nations  between  1872  and  1876,  says,  in  effect, 
that  the  industrial  activity  of  the  last  half-century  has 
resulted  in  fully  equipping  the  civilized  countries  of  the 
world  with  economic  tools,  and  the  work  of  the  future 
must  necessarily  be  repairs  and  replacement,  rather  than 
new  construction.  M.  Piermez,  a  prominent  Belgian 
banker,  in  writing  of  the  same  period  of  depression  and  of 
the  wonderful  prosperity  experienced  by  the  civilized 
nations  in  the  two  or  three  years  of  prosperity  just  pre- 
ceding the  period  of  depression  then  existing,  says:  "It 
is  not  likely  that  there  will  be  again  an  economic  progress 
comparable  to  that  by  which  this  century  has  changed  the 
face  of  the  whole  world." 

The  late  Hon.  Carroll  D.  Wright,  formerly  United 
States  Commissioner  of  Labor,  in  his  valuable  report  of 
1886  on  industrial  depressions,  calls  attention  to  the  fact 
that  the  Suez  Canal  had  been  built ;  Amsterdam  had  been 
united  to  the  sea;  the  Pyrenees  and  the  Alps  had  been 
tunneled;  the  merchant  marine  had  been  transformed 
from  wood  to  iron;  harbors  and  rivers  had  been  suffi- 
ciently developed;  railroads  in  England,  Belgium,  France, 
Italy,  Spain,  Russia,  Germany,  Austria,  Turkey,  and  the 


WORLD    FINISHED  65 

United  States  had  been  built;  and  he  adds:  "What  is 
strictly  necessary  has  been  done  oftentimes  to  superfluity, 
but  it  will  not  leave  room  for  a  marked  extension,  such 
as  has  been  witnessed  during  the  last  fifty  years,  or  afford 
a  remunerative  employment  of  the  vast  amount  of  capital 
which  has  been  created  during  that  period.  The  market 
prices  of  products  will  continue  low,  no  matter  what 
the  cost  of  production  may  be.  The  day  of  large  profits 
is  past.  There  may  be  room  for  further  intensive  but  not 
extensive  development  of  industries  in  the  present  era 
of  civilization/'  * 

Now,  these  opinions  were  written  by  men  who  had  rare 
opportunities  of  knowing  their  subject — men  of  unusual 
ability  and  intelligence.  In  shrewd  insight  and  correct- 
ness of  conclusions  upon  industrial  subjects,  the  writer 
has  always  placed  Mr.  Wright  second  to  no  man,  and  yet 
twenty  years'  additional  experience  shows  that  his  and 
the  other  opinions  upon  this  subject  were  utterly  ground- 
less. Yet,  how  many  would  have  disputed  these  opinions 
at  the  time  they  were  written?  When  pig  iron  was  $6.50 
per  ton  in  Alabama  and  $9  per  ton  in  Pennsylvania  in 
1897,  if  any  one  had  predicted  that  the  same  quality 
and  grade  of  iron  would  sell  for  $25  and  $27  per  ton 
within  five  years,  how  many  would  have  believed  it? 
The  theory  that  any  boom  will  carry  a  nation  to  a  point 
of  completion  in  improvements,  will  be  untenable  until 
after  that  nation  has  passed  its  zenith  and  commenced 
to  decay.  "The  tools  and  facilities  of  civilization"  must 
increase  with  the  growth  of  civilization  in  every  progress- 
ing nation. 

*  First  Annual  Report  of  the  United  States  Commissioner  of  Labor, 
pages  256-257. 


CHAPTER  VII 

MINOR   ALLEGED    CAUSES    OF   INDUSTRIAL    DEPRESSIONS 

IN  the  United  States,  as  well  as  in  some  other  countries, 
public  opinion  is  divided  on  the  question  of  high  and 
low  tariff.  Some  believe  that  high  tariff  is  largely  or 
wholly  responsible  for  our  periods  of  business  depression, 
while  others  believe  that  it  is  the  chief  cause  of  our  periods 
of  great  prosperity.  There  is  nothing  in  history  to 
support  either  belief.  The  revivals  of  business  have 
come  when  the  tariff  was  high,  and  when  it  was  low,  and 
the  depressions  have  done  likewise.  During  a  good  part 
of  the  last  century,  the  United  States  maintained  high 
tariff,  and  the  other  four  industrial  nations  low  tariff, 
and  yet  the  seasons  of  prosperity  and  of  depression  came 
to  all  of  these  five  nations  contemporaneously.  In  1889 
out  of  fifteen  nations  the  United  States  was  second  in 
highness  of  tariff,  while  France  was  eleventh,  Germany 
twelfth,  Great  Britain  thirteenth,  and  Belgium  fourteenth, 
and  these  are  the  five  nations  which  have  suffered  most 
severely  from  industrial  depressions.  In  the  United 
States,  between  1897  and  1907,  the  ups  and  downs  of  busi- 
ness were  among  the  largest  in  history  (see  Appendix  Z), 
and  yet  the  tariff  rates  were  the  same  throughout  the 
whole  period.  The  United  States  with  high  tariff,  and 
Great  Britain  with  free  trade,  have  been  the  two  nations 
which  have  suffered  most  severely  from  depressions  and 
have  suffered  at  substantially  the  same  time. 

The  prospect  of  early  tariff  change  has  undoubtedly 
had  violent  temporary  effects  upon  imports,  but  these 
violent  effects  come  from  the  ever-present  and  instinctive 
desire  for  gain.  When  a  dealer  knows  or  believes  there 
will  be  an  early  advance  in  the  duty  on  an  article  that  he 

66 


OTHER  ALLEGED  CAUSES    67 

imports,  he  will  make  extraordinary  efforts  to  import  a 
large  quantity  of  that  article  before  the  advance  goes 
into  effect.  A  notable  example  was  the  increase  in  the 
duty  on  tin-plate.  Between  the  passage  of  the  law  and 
the  date  on  which  the  advance  took  effect,  the  demand 
from  this  country  was  so  great  that  the  Welsh  mills  were 
run  to  full  capacity  night  and  day,  and  towards  the  close 
of  the  period  heavy  premiums  were  paid  for  fast  steam- 
ships to  land  cargoes  in  this  country  before  the  date  the 
larger  duty  was  to  take  effect.  After  this,  the  importa- 
tions of  tin-plate  ceased  almost  entirely.  On  the  other 
hand,  when  a  dealer  knows  or  believes  there  will  be  an 
early  reduction  in  tariff  rates,  he  will  put  off  imports  of 
the  goods  affected,  as  far  as  possible,  until  the  reduction 
has  gone  into  effect. 

OTHER    ALLEGED    CAUSES 

Then  there  are  a  considerable  number  of  causes  for 
depressions  alleged,  which  are  untenable  because  they 
increase  business,  whereas  depression  is  a  decrease  of 
business.  Among  this  class  are:  " Large  Importations 
of  Goods  and  Exportations  of  Gold,"  "  Large  Transfers 
of  Money,"  " Influx  of  Foreign  Capital,"  "Immigration," 
"Coolie  Labor,"  "Convict  Labor,"  etc.  Let  us  consider 
these  briefly. 

If  "Large  Importations  of  Goods  and  Exportations  of 
Gold"  were  a  cause  of  depression  in  the  United  States, 
then  they  should  have  been  a  cause  of  prosperity  in  the 
foreign  countries,  such  as  England  and  France,  both  of 
which  undoubtedly  profited  by  the  extravagance  of  our 
people;  but  these  countries  suffered  from  depression  at 
practically  the  same  time  the  United  States  did. 

Importations  of  goods  and  exportations  of  gold  are 
simply  exchanges  of  values.  One  person  wishes  certain 
goods  more  than  the  gold  he  possesses,  the  other  wishes 
gold  more  than  certain  goods  he  possesses;  each  parts 
with  something  of  value  for  something  he  considers  of 
more  value.  To  stop  such  exchanges  would  lessen  pros- 


68     INDUSTRIAL    DEPRESSIONS 

perity  or  intensify  depression.  Examine  our  exports 
and  imports  for  a  hundred  years,  and  it  will  be  seen  that 
the  balance  of  trade  was  largely  against  us  almost  con- 
stantly during  the  first  three  quarters  of  the  nineteenth 
century,  in  the  most  prosperous  years,  as  well  as  in  the 
most  depressed,  and  almost  constantly  in  our  favor  during 
the  last  quarter,  during  the  most  depressed  years  as  well 
as  the  most  prosperous.  No  connection  can  be  demon- 
strated as  having  existed  between  this  alleged  cause  and 
the  industrial  depressions  of  the  last  century  in  any  of 
the  industrial  nations. 

If  " Large  Transfers  of  Money"  brought  industrial 
depression  to  the  country  which  suffered  the  loss  of  the 
money,  as  many  have  claimed,  then  the  payment  of  the 
immense  war  indemnity  by  Franca  to  Germany,  in  1871 
to  1873,  should  have  brought  industrial  depression  to 
France;  whereas  the  depression  which  occurred  in  all 
the  industrial  nations  at  that  period  commenced  in  Ger- 
many several  months  before  it  did  in  France,  and  was 
much  more  severe  in  Germany.  This  transaction  was 
an  exceptional  case,  in  that  it  was  a  transfer  of  money 
without  a  return  of  value.  The  actual  result,  as  revealed 
by  analysis,  was  perfectly  logical,  where  the  real  cause 
of  the  mysterious  industrial  depressions  is  understood. 
The  5,500,000,000  francs  poured  into  Germany  stimulated 
the  building  of  factories  and  other  permanent  improve- 
ments to  a  degree  never  before  experienced.  The  capacity 
of  the  country  not  being  sufficient  to  furnish  the  materials 
to  supply  this  extraordinary  demand,  prices  of  construc- 
tion materials  advanced  enormously.  This  abnormal 
advance  in  prices  brought  a  sudden  and  unexpected  check 
to  contracts  for  construction  and  in  due  time  to  actual 
construction;  this  threw  large  numbers  of  workers  out  of 
employment,  and  put  the  endless  chain  of  depression  causes 
in  full  motion.  The  war  indemnity  hastened  and  inten- 
sified the  abnormal  advance  of  prices  in  Germany,  hence 
she  was  the  first  and  the  greater  sufferer  from  the  depres- 
sion which  followed.  In  this  case  the  large  transfer  of 


OTHER  ALLEGED  CAUSES    69 

money  was  a  powerful  cause  of  industrial  depression; 
but  it  did  not  come  in  the  manner  those  who  advocated 
this  alleged  cause  imagine,  but  just  the  reverse. 

Large  transfers  of  money  are  usually  made  in  adjust- 
ment of  large  transfers  of  products.  They  are  natural, 
they  promote,  they  do  not  retard  the  industries.  The 
large  transfers  of  money  from  the  cities  to  the  agricul- 
tural districts  to  pay  for  the  crops,  and  the  retransfer  of 
that  money  to  the  cities  to  pay  for  manufactured  products, 
is  a  necessity  to  business;  to  stop  it  would  almost  certainly 
bring  immediate  depression.  The  transfer  of  money 
between  nations  in  exchange  for  values  is  of  the  same 
necessary  and  healthful  nature,  and  promotes  the  pros- 
perity of  each. 

"Influx  of  Foreign  Capital"  is  another  promoter  of 
business  and  therefore  untenable  as  a  cause  of  depres- 
sion. The  unrestrained  flow  of  capital  from  one  place 
where  there  is  a  surplus,  to  another  place  where  there  is 
a  deficiency,  is  not  only  natural  but  beneficial  to  both 
sections.  It  furnishes  needed  capital  to  the  pioneers  who 
carry  progress  to  new  territories,  and  yields  a  revenue  to 
the  older  countries  which  supply  it.* 

" Immigration,"  " Coolie  Labor,"  "Convict  Labor," 
and  all  like  things,  which  in  themselves  add  to  business, 
a  thorough  analysis  shows,  cannot  be  maintained  as  causes 
of  an  industrial  depression,  for  depression  is  a  lessening  of 
business.  Additional  laborers,  from  whatever  source,  may 
be  detrimental  to  other  laborers,  when  the  supply  exceeds 
the  demand,  but  this  condition  should  never  exist.  When 
the  industrial  system  is  understood  and  adequately  con- 
trolled and  directed,  each  additional  worker  will  simply 
be  understood  to  mean  a  larger  increase  in  the  rate  of 
wealth-producing. 

*  "It  is  at  least  evident,that  in  a  country  situated  like  the  United  States, 
with  an  infinite  fund  of  resources  yet  to  be  unfolded,  every  farthing  of 
foreign  capital  which  is  laid  out  in  internal  melioration  and  in  industrial 
establishments  of  a  permanent  nature,  is  a  precious  acquisition."  Alexan- 
der Hamilton,  "Report  on  Manufactures"  made  to  Congress,  December 
5,  1791. 


70      INDUSTRIAL    DEPRESSIONS 

"Bad  Laws"  and  "Bad  Legislation,"  like  financial 
panics,  may  be  a  cause  of  industrial  depressions,  but 
when  they  have  this  effect  it  is  a  blow  from  the  outside 
and  is  known.  Take  the  Sherman  Silver  Coinage  Law, 
for  instance,  passed  in  March,  1890;  the  working  of  this 
law  was  clearly  the  cause  of  the  financial  disturbance  in 
1893,  and  the  financial  disturbance  had  a  disastrous  effect 
upon  the  industries,  but  the  cause  was  perfectly  apparent, 
there  was  no  mystery  about  it.  What  we  are  endeavoring 
to  indentify  is  the  mysterious  and  unknown  cause  which 
for  generations  has  brought  depressions  contemporane- 
ously in  all  five  of  the  industrial  nations  in  the  absence 
of  any  known  or  apparent  cause.  (See  table,  page  80.) 
It  is  altogether  likely  that  all  these  nations  have  bad  laws 
as  well  as  good  ones  upon  their  statute  books,  and  have 
had  them  through  prosperous  times  as  well  as  hard  times, 
but  we  do  not  find  that  they  have  all  had  epidemics  of 
bad  laws  contemporaneously  to  correspond  in  periodicity 
with  the  industrial  depressions  from  which  these  nations 
have  suffered  contemporaneously. 

"Want  of  Confidence  in  Government"  may  also  be  a 
cause  of  industrial  depression,  or  of  financial  panics,  or 
even  of  a  political  revolution;  but  if  it  were  of  sufficient 
gravity  to  cause  an  industrial  depression,  it  would  be 
known,  and  therefore  it  must  be  eliminated  from  the  list 
as  a  cause  of  the  mysterious  industrial  depressions  which 
are  the  subject  of  the  present  analysis.  It  is,  in  other 
words,  not  a  known  cause  for  which  we  are  searching. 


CHAPTER  VIII 

RESULT  OF  ELIMINATING  THE  UNTENABLE  ALLEGED  CAUSES 

IN  old  times,  when  one  wished  to  designate  a  proposed 
task  as  impossible,  or  at  least  supremely  difficult  to 
accomplish,  one  would  be  apt  to  designate  it  by  the  homely 
but  expressive  adage,  "You  might  as  well  hunt  for  a 
needle  in  a  haystack."  Now  if  a  needle  were  known  to  be 
in  a  haystack,  and  the  finding  of  it  were  of  as  much  impor- 
tance as  is  the  identification  of  the  cause  of  these  depres- 
sions to  the  manufacturing  nations  of  the  world,  it  would 
be  possible  to  find  the  needle,  provided  the  task  could 
be  accomplished  in  an  exhaustive  and  analytical  manner; 
that  is,  if  in  the  search  each  straw  composing  the  stack, 
from  the  top  down,  were  carefully  examined  and  analyzed, 
and,  as  the  examination  progressed,  each  straw  found  not 
to  have  the  needle  in  or  about  it  were  removed.  Of 
course,  if  the  straws  were  allowed  to  remain  after  they  had 
been  examined,  the  task  would  be  hopeless,  for  as  long 
as  the  mass  of  straws  remained  to  obstruct  the  view  and 
distract  the  attention  of  the  searcher  there  would  be  little 
chance  of  discovering  the  needle;  hence  the  removal  of 
the  straws,  after  they  are  found  to  be  free  of  the  needle, 
is  necessary  to  success. 

Just  so  with  the  search  for  the  cause  of  these  mysterious 
depressions.  With  the  hundreds  of  alleged  causes  claimed 
by  thousands  of  people  constantly  distracting  attention, 
the  task  of  distinguishing  the  real  cause  from  the  great 
mass  has  necessarily  been  almost  hopeless;  but  if  each 
alleged  cause  is  removed  after  it  is  found  to  be  untenable, 
it  will  then  cease  to  distract  the  searcher;  the  view  will 
be  unobstructed,  and,  in  the  end,  the  real  cause  will 

71 


72     INDUSTRIAL    DEPRESSIONS 

necessarily  be  identified,  simply  because  it  will  be  the 
only  one  remaining. 

In  carrying  out  the  experiment  of  eliminating  from  the 
lists  of  alleged  causes  gathered  by  the  various  govern- 
ment commissions  and  the  Bureau  of  Labor  *  in  the  effort 
to  discover  and  identify  the  unknown  cause,  the  first  and 
most  important  step  is  to  eliminate  everything  connected 
with  known  and  acknowledged  causes,  such  as  wars, 
earthquakes,  floods,  famines,  financial  panics,  etc.  This 
is  particularly  necessary  in  the  case  of  everything  con- 
nected with  finance,  not  only  because  financial  panics  are 
known  to  be  a  cause  of  industrial  depressions,  and  hence 
not  among  the  unknown  and  mysterious  causes  sought 
for,  but  because  the  admission  of  financial  matters  by  the 
searcher  has  for  fifty  years  or  more  been  the  chief  reason 
for  the  failures  to  identify  the  mysterious  causes.  In 
fact,  financial  influences  are  so  numerous  and  are  so  fre- 
quently the  known  cause  of  depressions  that  they  comprise 
a  large  part  of  the  mass  of  " straws"  which  for  these  many 
years  have  obstructed  the  search  and  confused  the  searcher. 
No  man  can  hope  to  fathom  the  mystery  who  allows  his 
thoughts  to  stray  in  such  a  distracting  field.  It  is  the 
cuttlefish,  which  simply  muddies  the  water  and  obscures 
the  vision  of  the  searcher.  For  these  reasons,  the  prog- 
ress of  elimination  will  be  commenced  by  placing  the 
letter  "F"  opposite  everything  connected  with  finance  in 
the  tables  in  Appendices  B  and  C. 

In  our  analysis  of  the  discoveries  of  the  United  States 
Commissioner  of  Labor,  as  to  the  contemporaneousness 
of  depressions  of  the  past,  in  the  five  manufacturing 
nations  of  the  world,  f  such  strong  and  persistent  evidence 
was  developed  as  to  make  it  almost  certain  that  these 
depressions  were  the  result  of  something  which  occurred 
contemporaneously  in  all  of  them.  When  Chapter  IX, 
which  contains  the  analysis  of  this  subject,  is  read,  it  will 
undoubtedly  be  admitted  that  all  alleged  causes  which 

*  Appendices  B  and  C. 

t  Chapter  IX,  commencing  on  page  79. 


RESULT    OF    ELIMINATIONS       73 

occurred  in  one  nation  only,  or  were  purely  local  in  a 
natural  sense,  such  as  " Presidential  Elections,"  "Na- 
tional Banking  System,"  "Demonetization  of  Silver," 
"Refunding  Act,"  etc.,  may  be  tentatively  eliminated. 
To  indicate  which  these  are,  we  have  placed  the  letter 
"A"  opposite  each  in  Appendices  B  and  C. 

The  United  States  Commissioner  of  Labor  gives 
"Falling  Prices"  as  one  of  the  chief  alleged  causes  of 
these  depressions.*  This  is  one  of  the  alleged  causes 
which  has  the  strongest  appearance  of  being  true,  but 
analysis  shows  that  appearances,  in  this  case,  are  totally 
deceptive.  Full  analysis  will  be  found  in  Chapter  XI, 
under  the  heading  "Demand  for  Immediate  Delivery 
vs.  Demand  for  Future  Delivery,"  commencing  on  page 
110. 

To  identify  the  untenable  alleged  causes  which  have 
received  special  treatment  and  are  eliminated,  either 
because  they  were  found  not  to  be  causes  of  depression, 
or,  when  so,  were  known  and  recognized,  and  therefore 
are  not  the  unknown  and  mysterious  causes  sought  for, 
the  letter  "G"  has  been  placed  opposite  each  in  Appen- 
dices B  and  C. 

As  maximum  production,  maximum  creation  of  buying 
power  is  hi  itself  industrial  prosperity;  nothing  which 
contributes  to  the  increase  of  business  can  be  logically 
rated  as  a  cause  or  contributory  cause  of  industrial  de- 
pressions, f  Everything,  therefore,  which  adds  to  business, 
whether  great  or  small,  may  be  eliminated  as  untenable, 
and  so  designated,  by  placing  the  letter  "D"  opposite 
each  in  Appendices  B  and  C. 

We  may  also  eliminate  from  the  lists  of  alleged  causes 
as  untenable  everything  which  exists  continuously,  in 
good  times  as  well  as  in  bad  times,  such  as  "Destitution 
Caused  by  Sickness,"  "Taxation,"  "Intemperance," 
"Tobacco,"  "Combinations  of  Capital,"  "Competition 
of  Products  in  Market,"  "Patent  Laws,"  "Educational 

*  First  Annual  Report,  1886,  page  79. 
t  See  page  41. 


74      INDUSTRIAL    DEPRESSIONS 

System,"  etc.  To  identify  such  as  are  eliminated  on  this 
ground,  the  letter  "B"  has  been  placed  opposite  each  in 
Appendices  B  and  C. 

We  may  also  eliminate  from  the  lists  of  alleged  causes 
as  untenable  everything  which  affects  individuals,  or  a 
collection  of  individuals  only,  and  which  does  not  affect 
the  business  of  a  nation  as  a  whole;  also  such  things  as 
may  be  a  loss  to  an  individual,  or  a  collection  of  individ- 
uals, but  at  the  same  time  are  a  corresponding  gain  to 
some  other  person  or  persons,  or  to  the  government,  such 
as  " Taxes,"  "Land  Grants  to  Corporations,"  "Unequal 
Division  of  Profits,"  "Unjust  Taxation,"  etc.  To  iden- 
tify such  as  are  eliminated  on  this  ground,  the  letter  "E" 
has  been  placed  opposite  each  such  alleged  cause  in 
Appendices  B  and  C. 

Among  the  alleged  causes  of  industrial  depressions 
referred  to  at  the  close  of  Chapter  II,  which  are  too  trivial 
to  require  any  evidence  to  convince  one  of  their  untenable 
nature,  are  such  as  "Adulteration  of  Food,"  "Piece- 
work," "Neglect  of  Laboring  Men  by  the  Aristocracy," 
"Conspiracy  Laws,"  "Free  Passes,"  etc.  These  alleged 
causes  may  be  dismissed  as  untenable  on  the  ground  that 
they  are  too  unimportant  to  cause  such  a  great  revulsion 
as  a  widespread  industrial  depression.  To  identify  such 
as  are  eliminated  on  this  ground,  the  letter  "C"  has  been 
placed  opposite  each  in  Appendices  B  and  C. 

By  reference  now  to  Appendices  B  and  C,  it  will  be 
observed  that  all  but  twenty-one  of  the  alleged  causes 
have  been  eliminated  for  one  or  more  of  the  six  reasons, 
represented  by  the  identifying  letters  A,  B,  C,  D,  E,  and 
F,  or  by  separate  and  special  treatment  identified  by 
letter  "G."  The  twenty-one  not  eliminated  are  as 
follows: — 


1.  Want  of  Demand, 

2.  Decrease  of  Home  Demand, 

3.  Want  of  Foreign  Market, 

4.  Want  of  Market  for  Home  Products, 

5.  Under-consumption, 


RESULT    OF    ELIMINATIONS       75 

6.  Decreased  Building  of  Railroads, 

7.  Want  of  Employment, 

8.  Too  many  Non-producers, 

9.  Enforced  Idleness, 

10.  Surplus  of  Labor, 

11.  Enforced  Economy  of  the  Laboring  People, 

12.  Increased  Public  and  Private  Economy, 

13.  Want  of  Confidence, 

14.  Inflation  of  Prices, 

15.  Expanding  Values, 

16.  Variation  in  the  Cost  of  Production, 

17.  Variation  in  the  Rate  of  Wages, 

18.  Reduction  of  Prices  to  Cost  of  Production, 

19.  Uneven  Production, 

20.  Want  of  Adjustment  between  Production  and  Consumption, 

21.  Erroneous  Industrial  System. 

None  of  these  can  be  eliminated  on  any  of  the  tests  thus 
far  tried. 

The  first  twelve  are  found  on  analysis  to  be  conditions 
of  depression,  and  conditions  which  do  not  exist  in  any 
of  the  five  industrial  nations  during  a  season  of  industrial 
prosperity.  As  long  as  the  boom  is  at  its  height  and  all 
business  is  kept  up  to  the  maximum  rate,  there  is  no 
"want  of  demand";  no  " decrease  of  home  demand"; 
no  "want  of  foreign  market";  no  "want  of  market  for 
home  products " ;  no  " under-consumption " ;  no  "decreased 
building  of  railroads";  no  "want  of  employment";  no 
condition  of  "too  many  non-producers";  no  "enforced 
idleness";  no  "surplus  of  labor";  no  "enforced  economy 
of  the  laboring  people,"  and  no  "increased  public  and 
private  economy."  It  is  only  after  the  microbe  of  in- 
dustrial depressions  has  existed  and  been  at  work  many 
months,  and  finally  the  malady  has  broken  out  upon  the 
surface,  that  any  of  these  twelve  conditions  appear  in 
the  five  industrial  nations.  Then  they  appear  in  all  of 
them,  grow  rapidly,  and  continue  to  exist  in  these  nations, 
all  through  a  period  of  industrial  depression.  When  they 
cease  to  exist,  depression  has  ceased  to  exist.  In  fact, 
they  are  the  sum  and  substance  of  depression.  We  may, 
therefore,  still  further  contract  the  field  of  our  search  for 
the  mysterious  cause,  by  eliminating  these  twelve  alleged 


76      INDUSTRIAL    DEPRESSIONS 

causes  on  the  ground  that  they  are  clearly  conditions  of 
depression,  and  hence  not  the  cause  of  depression.  To 
identify  such  as  are  eliminated  on  this  ground,  we  will 
place  the  letter  "H"  opposite  each  in  Appendices  B  and  C. 

Before  leaving  these  twelve  conditions  of  depression, 
however,  we  must  call  special  attention  to  their  great 
importance.  They  are  the  links  in  the  endless  chain  of 
industrial  depression  events.  This  chain  is  started  by 
the  reduction  in  active  business.  Then  follows,  in  turn, 
reduction  of  production,  reduction  of  employment,  reduc- 
tion of  earnings,  reduction  of  expenditures,  and  reduction 
of  demand;  followed  by  a  series  of  repetitions  of  this 
chain  of  events,  each  acting  upon  and  intensifying  the 
others,  until  the  depth  of  depression  is  reached.  What 
this  means  to  the  five  nations  can  be  imagined,  when  we 
remember  that  in  this  one  nation  the  average  earnings 
of  each  of  its  twenty-nine  millions  of  workers  is  estimated 
at  $600  per  annum.*  If  five  out  of  each  twenty-nine  of 
these  workers  are  thrown  out  of  employment,  it  means 
a  loss  at  the  rate  of  $3,000,000,000  per  annum  in  the 
earnings  of  the  people  of  this  one  nation. 

A  careful  examination  of  the  six  following  alleged  causes 
(13  to  18),  which  we  have  not  been  able  to  eliminate  by 
any  of  the  tests  applied,  shows  that  they  can  all  be  summed 
up  in  the  one  term,  "High  Prices, "  which  everything  thus 
far  points  to  as  the  cause  of  the  mysterious  industrial 
depressions  under  review.  "Inflation  of  Prices"  and 
"Expanded  Values"  (14  and  15),  for  example,  are  simply 
high  prices  expressed  in  different  words,  and  the  same 
may  be  said  of  the  high,  inflated,  or  expanded  elements 
of  "Variation  in  the  Cost  of  Production"  and  "Variation 
in  the  Rate  of  Wages"  (16  and  17).  The  reverse  elements 
of  16  and  17,  and  "Reduction  of  Prices  to  Cost  of  Pro- 
duction" (18),  are  simply  the  natural  rebound  from  high 
prices.  It  is  these  high,  inflated,  and  expanded  wages, 
values,  and  prices,  when  they  have  entered  into  production, 
which  create  the  "Want  of  Confidence"  (13),  and  it  is 

*  First  Annual  Report  of  the  Commissioner  of  Labor,  page  66. 


RESULT    OF    ELIMINATIONS      77 

the  want  of  confidence  which  tightens  the  purse-strings, 
and  this  in  turn  cuts  down  production,  thus  bringing  on 
11  Uneven  Production"  (19),  and  "Want  of  Adjustment 
between  Production  and  Consumption "  (20).  While 
the  boom  is  on,  and  maximum  production  is  kept  up,  all 
materials  which  can  be  produced  are  quickly  absorbed, 
and  this  is  in  effect  a  perfect  "adjustment  between  pro- 
duction and  consumption77;  but  when  production  of 
buildings,  ships,  railroads,  etc.,  falls  off,  the  materials 
ordinarily  used  in  these  enterprises  accumulate,  and  the 
perfect  "adjustment  between  production  and  consump- 
tion" ceases. 

No  one  can  deny  that  we  have  an  "Erroneous  Industrial 
System"  (21).  There  could  be  no  stronger  evidence  of 
this  than  the  fact  that  our  industrial  system  has  for  a 
century  permitted  these  enormous  fluctuations  in  the 
prices  of  the  principal  materials  which  enter  into  our 
growth  in  permanent  wealth.  First  comes  the  period  of 
abnormally  low  prices,  under  the  stimulus  of  which  con- 
tracts for  production  are  made,  which  later  on  are  found 
to  be  far  in  excess  of  the  country's  capacity  to  execute. 
Then  follows  as  a  natural  consequence  the,  period  of 
abnormally  high  prices,  which  checks  the  contracts  for 
production  to  a  degree  which  later  on  is  found  to  reduce 
actual  production  far  below  the  country's  capacity  to  exe- 
cute. 

In  these  nine  uneliminated  alleged  causes  (13  to  21), 
we  have  a  complete  list  of  everything  which  requires  to  be 
remedied,  to  do  away  with  and  prevent  the  twelve  condi- 
tions (1  to  12)  which  make  up  industrial  depressions,  as 
far  as  they  are  the  result  of  internal  microbes. 

If  anything  be  needed  to  free  this  conclusion  from  doubt 
or  uncertainty,  it  can  be  found  in  the  fact  that  every 
industrial  depression  which  has  occurred  in  the  five  in- 
dustrial nations,  not  recognized  as  the  result  of  some  ex- 
ternal cause,  has  been  preceded  by  the  nine  causes  (13  to 
21),  and  attended  by  the  twelve  conditions  (1  to  12),  which 
are  the  subject  of  this  chapter,  and  by  the  further  fact 


78      INDUSTRIAL    DEPRESSIONS 

that  there  has  not  been,  during  the  century,  a  single  case 
of  an  abnormal  advance  in  the  price  of  important  com- 
modities which  has  not  been  followed  by  a  depression. 

From  these  facts  it  would  appear,  that  of  all  the  alleged 
causes  gathered  by  the  three  commissions  appointed  by 
the  United  States  Senate  and  House  of  Representatives, 
and  those  gathered  by  the  Bureau  of  Labor  during  the 
first  year  of  its  existence,  together  with  those  gathered 
from  all  other  available  sources,  there  is  but  one  alleged 
cause  which  stands  the  test  of  all  forms  of  analysis  which 
can  be  brought  to  bear  upon  it.  That  one, ' '  High  Prices," 
stands  the  test,  no  matter  in  what  manner  it  appears  or 
in  what  particular  form  of  words  it  may  be  expressed. 


CHAPTER  IX 

IRON   THE    BAROMETER   OF   TRADE 

CONTEMPORANEOUSNESS  AND  SEVERITY  OF  INDUSTRIAL 
DEPRESSIONS  IN  THE  FIVE  CHIEF  IRON-PRODUCING 
NATIONS* 

IN  the  previous  chapter  our  analysis  of  facts  has  indi- 
cated that  high  prices  were  the  cause  of  industrial 
depressions  in  the  United  States  from  1832  to  1884. 
Turning  our  attention  now  to  the  other  great  nations, 
which  suffered  most  severely  from  industrial  depressions 
during  the  same  period,  we  are  confronted  with  some 
remarkable  corroborative  evidence. 

The  United  States  Commissioner  of  Labor,  in  the  sum- 
mary of  his  first  annual  report,  gives  some  data  from  analy- 
sis of  the  information  gathered,  which  is  of  great  value. 
First  in  importance  is  the  fact  that  industrial  depressions 
during  the  last  century  were  most  severe  in  Great  Britain, 
United  States,  Germany,  France,  and  Belgium,  and  were 
not  felt  to  any  comparable  extent  in  other  nations. 
Second,  that  the  degree  of  severity  in  these  five  nations, 
as  related  to  each  other,  was  in  the  order  above  named, — 
that  is,  most  severe  in  Great  Britain,  least  severe  in  Bel- 
gium, etc.  Third y  that  industrial  depressions  were  nearly 
or  quite  contemporaneous  in  these  five  nations.  The 
following  paragraph  and  table  are  taken  from  page  290 
of  said  report : 

"It  has  been  clearly  shown  that  the  depressions  of  the 
past  in  the  manufacturing  nations  of  the  world  have 
been  nearly  or  quite  contemporaneous  in  their  occur- 
rence. Summarized  as  to  dates,  the  following  table  is 
deduced:" 

*  This  is  chapter  and  subject  referred  to  on  page  72. 
79 


80      INDUSTRIAL    DEPRESSIONS 

YEARS  OF  DEPRESSIONS 

litotes     ~~  ~"  1814  1818  1826  ~"  1837  1847  1857  1867  1873  1882 

Britain  1803  181°  1815  1818  1826  183°  1837  1847  1857  1866  1873  1883 

France  1804  1810  1813  1818  1826  1830  1837  1847  1856  1866  1873  1882 

Belgium  ______  1837  1848  1855  1864  1873  1882 

Germany  _  _____  1837  1847  1855  —  1873  1882 

VALUABLE  CLUES 

The  above  table  of  contemporaneousness  of  depressions 
in  the  five  industrial  nations  gives  several  valuable  clues. 
It  indicates  that  the  cause  of  these  mysterious  industrial 
depressions  will  be  found: 

First.  In  something  which  took  place  in  these  five 
nations  contemporaneously. 

Second.  In  something  which  did  not  take  place,  or  did 
not  exist  to  so  great  a  degree,  in  other  nations. 

Third.  In  something  which  occurred  only,  or  existed 
only  to  so  great  a  degree,  in  Great  Britain  and  France, 
from  1800  to  1810. 

Fourth.  In  something  which  occurred  only,  or  existed 
only  to  so  great  a  degree,  in  Great  Britain,  France,  and 
the  United  States,  from  1811  to  1826. 

Fifth.  In  something  which  occurred  only,  or  existed 
only  to  so  great  a  degree,  in  Great  Britain,  France,  the 
United  States,  Germany,  and  Belgium,  from  1831  to  1883. 

Sixth.  In  something  which  occurred  hi  these  five 
nations,  as  above  noted,  on  or  before  the  times  they  suf- 
fered from  these  various  contemporaneous  industrial 
depressions. 

Seventh.  In  something  which,  when  it  occurred,  was 
always  followed  or  accompanied  by  an  industrial  depres- 
sion in  these  five  nations. 

Eighth.  In  something  which  did  not  exist,  or  which 
disappeared  during  the  periods  in  which  these  nations 
experienced  an  industrial  revival. 

Ninth.  In  something  powerful  enough  to  affect  the 
volume  of  business  in  these  nations  to  the  extent  that 


IRON    THE    BAROMETER  81 

they  respectively  suffered  during  these  industrial  depres- 
sions. 

Tenth.  In  something  which  was  not,  at  the  time,  recog- 
nized as  a  calamity,  as  would  have  been  an  external  blow, 
such  as  a  financial  panic,  famine,  war  or  pestilence. 

Eleventh.  In  something  internal,  and  inherent  to  the 
industries  themselves. 

Twelfth.  In  something  so  slow,  silent,  and  gradual  in 
its  action  as  to  continue  for  many  months  without  creat- 
ing alarm,  yet  so  pernicious  and  powerful  in  its  cumulative 
force  as  to  produce  disastrous  industrial  depressions  in 
five  nations,  contemporaneously,  and,  frequently,  during 
an  entire  century. 

Here  is  a  rich  and  most  promising  field  in  which  to  make 
an  analytical  search  for  the  unknown  cause  of  industrial 
depressions,  for  in  all  these  twelve  conditions  we  should 
be  able  to  find  something  in  which  these  five  nations  are 
ranked  together,  even  if  we  cannot  find  anything  in  which 
they  are  ranked  in  the  same  order  in  relation  to  each  other. 
Note  the  fact  that  the  table  of  contemporaneousness  on 
page  80  places  Belgium  in  a  group  with  four  great  nations, 
while  among  the  nations  which  are  not  included  are 
several  that  outrank  her  not  only  in  population  and  area, 
but  in  wealth,  agriculture,  and  many  other  important 
things.  The  question  that  naturally  arises  is;  why  should 
this  small  nation  be  ranked  with  the  United  States,  Great 
Britain,  Germany  and  France,  while  Russia,  Austria, 
Italy  and  Spain,  which  outrank  her,  in  most  of  the 
important  things,  from  300  to  3000  per  cent.,  are  not 
even  admitted  to  the  group?  Let  us  analyze  this  matter. 

In  the  800  pages  of  Mulhall's  Dictionary  of  Statistics 
are  found  exhaustive  data  upon  all  the  important  affairs 
which  affect  nations.  In  a  thorough  search  through  this 
volume  nothing  is  found  which  even  places  these  five 
nations  in  a  group  by  themselves  in  anything  connected 
with  either  agriculture,  commerce,  finance,  population, 
area,  education,  wealth,  banking,  money,  labor,  wages, 
cost  of  food,  mining  or  taxes  (see  Appendix  H) ;  while,  on 


82      INDUSTRIAL    DEPRESSIONS 

the  other  hand,  in  the  statistics  connected  with  the  indus- 
tries are  found  four  cases  in  which  the  five  nations  are 
grouped  by  themselves,  namely: 

Horse  Power  per  Inhabitant. 

Coal  Consumption  per  Inhabitant. 

Total  Amount  of  Iron  Production  in  the  World  from 
1800  to  1900. 

Value  of  the  Total  World's  Iron  Production,  from  1800 
to  1900.* 

ADDITIONAL    CLUES 

Here  we  have  a  remarkable  and  valuable  clue,  for  if  the 
mysterious  industrial  depressions  of  the  last  century  were 
so  much  more  severe  in  these  five  nations  that  it  placed 
them  in  a  group  by  themselves,  and  if  there  is  nothing  in 
all  the  affairs  of  nations  which  places  them  in  a  group  by 
themselves,  except  conditions  connected  with  the  indus- 
tries, it  would  seem  to  be  another  indication  that  the  cause 
of  these  depressions  originated  from  within  the  industries, 
and  not  from  anything  outside. 

Pursuing  the  analysis  further,  it  is  found  that  only  two 
things  of  the  above  four  place  these  five  nations  in  the 
same  order  as  relating  to  each  other  which  they  occupy 
in  relation  to  each  other  in  the  severity  of  industrial  de- 
pressions. These  two  are,  "  Total  Amount  of  Iron  Pro- 
duction in  the  World,  from  1800  to  1900,"  and  "Value  of 
the  World's  Iron  Production,  from  1800  to  1900."  (See 
columns  60  and  61,  Appendix  H.)  Here  we  have  a  clue 
which  points  to  something  connected  with  iron  production, 
as  in  some  way  responsible  for  these  industrial  depressions, 

Pursuing  the  analysis  further,  it  is  found  that  for  several 
centuries  Great  Britain  and  France  were  not  only  the 
chief  manufacturing  nations,  but  the  chief  producers  of 
the  world's  iron  supply,  and  that  they  maintained  this 
position  during  the  early  part  of  the  nineteenth  century, 
when,  as  shown  by  the  foregoing  table,  they  were  the 
only  two  nations  which  suffered  severely  from  industrial 
*  See  columns  55,  59,  60  and  61,  Appendix  H. 


IRON    THE    BAROMETER          83 

depressions.  It  is  found  also  that,  during  the  War  of 
1812,  the  United  States  was  largely  thrown  upon  her  own 
resources  for  iron,  and  that  by  1820  she  was  producing 
110,000  *  tons  per  annum,  against  140,000  tons  produced 
by  France,  and  400,000  tons  produced  by  Great  Britain; 
and  that  in  1814  the  United  States  commenced  to  suffer 
severely  from  industrial  depressions.  It  is  found  also 
that  later  on  Germany  and  Belgium  became  large  iron- 
producers,  and  that  when  this  took  place  they,  too,  com- 
menced to  suffer  from  industrial  depressions. 

Although  Russia,  Austria,  Sweden,  Spain,  and  Italy  are 
excluded  from  the  list  of  five  nations  which  suffered  most 
severely  from  industrial  depressions,  it  is  found  that  most 
authorities  mention  Russia,  Austria  and  Sweden  as  hav- 
ing suffered  to  some  extent,  while  some  few  make  casual 
mention  of  Spain  and  Italy  as  being  slight  sufferers.  By 
referring  to  Appendix  M  it  will  be  found  that  the  five 
nations  included  in  this  second  list  were  also  iron-pro- 
ducers, though  to  a  much  smaller  per  capita  amount. 
Now,  by  referring  to  columns  60  and  61,  of  Appendix  H, 
it  is  found  that  the  relative  amount  of  iron  produced  by 
this  second  list  of  five  nations,  as  compared  with  each 
other,  was  in  the  same  order  they  are  named  at  that  time 
in  relative  degree  of  sufferers  from  depressions. 

This  remarkable  correspondence,  between  the  rank  of 
ten  nations,  in  the  production  of  iron,  and  their  rank  in 
the  severity  of  industrial  depressions,  is  of  great  signifi- 
cance. Such  facts  cannot  be  waived  aside  by  calling  them 
ten  coincidences.  Nor  can  the  fact  that  these  mysterious 
industrial  depressions  were  entirely  absent  in  the  nations 
which  did  not  produce  iron  be  waived  aside  as  another 
set  of  coincidences.  The  chain  of  connection  between 
iron  production  and  these  mysterious  industrial  depres- 
sions is  too  persistent  and  continuous.  But  the  chain 
of  connection  does  not  stop  here.  Iron  is  universally 
acknowledged  to  be  the  foundation  of  the  mechanical 
and  manufacturing  industries.  Where  iron  is  produced, 
*  Mulhall's  Dictionary  of  Statistics,  fourth  edition,  page  332. 


84      INDUSTRIAL    DEPRESSIONS 

there  it  is  most  largely  consumed;  where  it  is  most  largely 
consumed,  there  the  industries  are  greatest,  and  where  the 
industries  are  greatest,  there  the  suffering  which  results 
from  an  industrial  depression  is  most  severe.* 

Do  these  remarkable,  corresponding  conditions  not 
point  unmistakably  to  the  probability  that  the  cause  of 
these  mysterious  industrial  depressions  will  be  found 
within  the  industries  which  iron  production  created,  and 
possibly  in  something  immediately  connected  with  iron? 

But  still  the  chain  of  connection  does  not  stop.  In 
chapters  XIII,  XIV,  and  XV,  will  be  found  a  perfect 
sequence,  from  the  abnormal  advance  in  the  price  of  iron 
to  all  the  corresponding  industrial  depressions  which 
occurred  from  1832  to  1908,  which  were  at  the  time  not 
recognized  as  the  effect  of  some  external  cause.  Here  is 
something  " within  the  industries/'  and  something  " im- 
mediately connected  with  iron/'  something,  too,  which 
existed  in  all  the  five  nations  immediately  preceding  each 
of  these  ten  depressions,  and  which  did  not  exist  in  these 
nations  at  other  times.  Furthermore,  high  price  of  iron, 
as  will  be  shown  hereafter  in  this  volume,  is  the  condition 
which  is  chiefly  responsible  for  high  prices  of  construction, 
and  high  prices  of  construction  we  claim  to  be  the  unknown 
cause  of  the  " mysterious"  industrial  depressions  from 
which  the  five  industrial  nations  have  suffered  during  the 
last  century. 

To  illustrate  further  the  remarkable  national  and 
periodic  conformity  between  industrial  depressions  and 
pig  iron  production,  and  the  complete  lack  of  conformity 
in  everything  outside  of  the  industries,  we  give  in  Appendix 
H  the  relative  rank  of  the  nations  in  sixty  of  the  most 
important  matters.  The  dates  used  are  either  the  date 
of  the  table  of  contemporaneousness  (1886),  or  the  nearest 
obtainable  to  that  date.  To  illustrate  the  remarkable  na- 

*Some  pronounced  changes  have  occurred  since  1886  in  the  rank  of 
nations  as  iron-producers.  At  the  present  time  (1911)  they  stand  as  fol- 
lows: United  States,  Germany,  Great  Britain,  France,  Russia,  Austria- 
Hungary,  Belgium,  Canada,  Sweden,  Spain,  Italy. 


IRON    THE    BAROMETER  85 

tional  and  periodic  conformity  between  these  mysterious 
industrial  depressions  and  high  prices  of  iron,  we  give 
in  Appendix  G  a  table  showing  the  persistent  sequence 
between  high  prices  of  pig  iron  and  industrial  depressions 
from  1825  to  1908. 

INFLUENCE   OF    THE    PRICE    OF    IRON    UPON    ALL   BUSINESS 

Now  the  advance  in  the  price  of  iron  which  takes  place 
during  each  boom,  while  it  is  but  a  small  portion  of  the 
aggregate  advance  in  the  general  prices  of  construction, 
yet  it  has  a  remarkable  influence  in  bringing  about  the 
advance  in  labor  and  general  construction  costs.  This 
is  partly  because  iron  is  first  to  advance,  partly  because 
its  advance  is  so  great,  and  partly  because  the  ups  and 
downs  in  iron  are  so  generally  watched  by  those  engaged 
in  all  the  other  industrial  interests.  Few  people  keep 
posted  in  the  ups  and  downs  in  the  prices  of  lumber,  brick, 
stone,  cement,  etc.,  but  nearly  every  one  watches  the  price 
of  iron.  Even  as  far  back  as  fifty  years  ago  business  men 
watched  iron  prices  as  an  indication  and  guide  as  to  what 
they  could  look  for  in  the  future  of  their  own  business. 

In  the  dark  days  of  1862  and  1863,  when  the  United 
States  was  in  the  throes  of  the  great  Civil  War,  when 
business  was  confined  almost  exclusively  to  dealings  in 
war  supplies  and  the  necessities  of  life,  and  when  prices 
of  all  materials  that  entered  into  construction  or  perma- 
nent improvements  were  greatly  depressed,  there  came  a 
slow  but  persistent  advance  in  the  price  of  iron.  Several 
of  the  important  business  men  called  upon  a  prominent 
iron  firm  in  one  of  our  large  cities  to  inquire  about  this 
advance.  They  said  in  substance  that  they  had  found 
from  long  experience  that  such  an  advance,  if  maintained 
any  length  of  time,  was  always  followed  by  a  great  revival 
in  business  and  an  advance  in  all  important  staples,  and 
if  the  present  advance  promised  to  be  maintained,  they 
intended  to  advance  the  price  of  their  own  commodities. 
These  gentlemen  were  satisfied,  from  their  interview,  that 
the  advance  would  not  only  be  maintained,  but  that  it 


86      INDUSTRIAL    DEPRESSIONS 

would  probably  continue  and  be  very  much  greater.  The 
result  was  that  an  immediate  advance  was  made  in  the 
commodities  dealt  in  by  these  visiting  business  men,  and 
it  was  rapidly  followed  all  over  the  country.  If  you  wish 
quick  action  from  a  business  man,  show  him  how  he  can 
gain  by  the  act. 

In  all  our  investigations,  we  have  never  interviewed  a 
dealer  in  the  other  commodities  who  did  not  acknowledge 
that  he  had  watched  the  price  of  iron  and  been  largely 
influenced  in  his  own  business  by  the  pronounced  fluctua- 
tions in  this  "  Barometer  of  Trade."  In  an  interview, 
the  oldest  and  largest  dealer  in  lumber  frankly  admitted 
to  the  writer  that  in  his  active  business  days  he  always 
kept  close  watch  of  the  price  of  iron,  and  acted  promptly 
and  largely  on  its  indications;  and  in  later  life,  as  he 
expressed  it,  "I  always  told  my  young  men  to  buy  heavily 
and  sell  sparingly  when  iron  commenced  to  advance,  and 
to  buy  sparingly  and  sell  rapidly  when  iron  commenced 
to  go  down." 

During  the  thirty-eight  years  in  which  the  writer  has 
observed  the  course  of  events  attending  each  boom,  iron 
has  been  the  first  important  staple  to  develop  a  short 
supply,  and  the  first  to  experience  a  large  advance  in  price. 
This  advance  has  sometimes  been  as  much  as  50  to  100 
per  cent,  before  any  considerable  advance  has  occurred 
in  the  other  materials  of  construction.  History  does  not 
show  any  instance  in  which  there  has  been  a  large  advance 
in  the  price  of  the  other  building  materials  before,  or  at 
the  same  time,  that  the  advance  occurred  in  iron,  unless 
there  was  some  unusual  condition  to  cause  it. 

The  cause  of  the  great  advance  in  the  price  of  iron  has 
always  been  the  same,  namely,  fear  of  a  famine  in  its 
supply;  there  is  never  any  such  fear  as  to  the  supply  of 
lumber,  brick,  stone,  cement,  etc.;  hence  these  other 
materials  do  not  advance  when  iron  does.  The  extra 
demand  for  the  other  materials  comes  at  the  same  time, 
and  in  the  same  proportion,  that  the  extra  demand  for 
iron  comes;  if  the  conditions  of  supply  were  the  same,  they 


IRON    THE    BAROMETER  87 

would  undoubtedly  advance  in  price  at  the  same  time, 
and  in  the  same  proportion,  but  this  has  never  been  the 
case.  The  advance  in  the  price  of  iron  has  always  been 
greater  and  has  commenced  a  long  time  before  the  advance 
in  the  other  materials. 

Does  any  one  familiar  with  these  staples  believe  that 
the  prices  of  lumber,  brick,  stone  and  cement  would  go 
up  80  to  300  per  cent,  if  the  advance  in  the  price  of  iron 
was  confined  to  10  or  15  per  cent.?  There  is  no  such 
danger  of  a  famine  in  the  supply  of  these  other  materials. 
It  is  profitable  to  carry  lumber  for  seasoning  purposes, 
and  the  ordinary  stock  is  equal  to  two  or  three  years ' 
consumption,  while  the  output  of  brick  and  stone  can  be 
doubled  within  a  short  time  by  simply  doubling  the 
workers  in  the  quarries  and  brick-yards;  but  it  takes  a 
year  to  build  an  iron-furnace,  and  the  stock  of  iron  carried 
in  the  United  States  is  rarely  more  than  two  or  three 
weeks'  product.  Under  these  circumstances,  whenever 
the  demand  for  iron  increases  largely  and  quickly,  say 
100  per  cent,  within  four  or  five  months,  it  creates  a 
vacuum  which  it  is  impossible  to  fill  for  many  months, 
and  in  the  ensuing  struggle  among  the  many  consumers  to 
get  what  little  is  produced  over  and  above  what  is  pledged 
by  contracts,  these  enormous  advances  take  place.* 

The  advance  of  100  per  cent,  in  the  price  of  iron  is  no 
reason  for  an  advance  in  the  price  of  the  other  building 
materials,  it  is  only  an  excuse.  The  dealers  in  these  other 
materials  see  the  opportunity,  and,  being  human,  take 
advantage  of  it.  The  advance  in  iron  is  because  of  the 
absolute  impossibility  of  supplying  the  demand;  not  so 
with  the  other  materials.  After  the  enormous  building 
of  1899,  the  year  terminated  with  a  stock  of  iron  equal  to 
but  three  days'  production,  while  the  stock  of  lumber  was 
equal  to  two  years'  production.  No  abnormal  advance 
in  the  price  of  lumber,  brick,  stone,  etc.  has  ever  occurred 
or  is  likely  to  occur,  without  a  preceding  advance  in  the 

*  The  average  stock  of  pig  iron  carried  in  the  United  States  during  the 
last  twenty-five  years  was  less  than  twenty-three  days'  product. 


88      INDUSTRIAL    DEPRESSIONS 

price  of  pig  iron.  —  Keep  the  price  of  iron  within  bounds, 
and  you  keep  everything  within  bounds. 

Think  of  iron  advancing  from  80  to  300  per  cent. !  Is 
it  any  wonder  that  the  producers  of  lumber,  brick,  stone, 
cement,  etc.,  try  to  realize  some  of  this  advance,  and  that 
they  succeed?  The  same  controlling  influence  seems  to 
be  almost  as  potent  during  the  dull  years,  in  which  prices 
settle  back  to  the  abnormally  low  basis  which  stimulates 
another  boom;  that  is,  every  one  looks  to  see  what  iron 
is  doing. 

Then,  too,  the  large  advance  in  iron  at  the  beginning 
of  a  boom  soon  prompts  the  laborers  engaged  in  iron- 
making  to  demand  higher  wages,  and  this  movement 
spreads  among  all  laborers.  Thus  the  cost  of  production  is 
raised  inordinately  hi  all  commodities.  Broadly  speaking, 
a  boom  in  this  country  advances  the  price  of  iron  from 
80  per  cent,  to  300  per  cent,  within  a  few  months,  and 
usually  advances  the  cost  of  producing  it  from  50  to  100 
per  cent,  before  the  boom  is  over.  This  addition  to  cost 
is  very  serious  in  many  ways,  but  the  most  serious  feature 
about  it  is  the  long  time  it  takes  to  effect  a  cure.  It  is 
made  up,  partly  hi  the  advance  of  labor  and  partly  in  the 
advance  of  profits;  both  of  these  elements  are  in  the 
hands  of  many  people,  and  each  one  holds  on  to  his  extra 
pay,  or  extra  profit,  as  long  as  he  can,  and  so  it  nearly 
always  takes  a  long  time  to  get  back  to  a  basis  low  enough 
to  stimulate  another  boom. 

It  is  only  hi  the  iron-producing  countries  that  these 
enormous  advances  in  prices  of  building  materials  during 
what  we  call  booms  reach  such  proportions;  hence  it  is 
only  in  these  countries  that  the  great  set-backs  in  con- 
struction, which  we  call  industrial  depressions,  reach  such 
severity. 

PREVALENCE    OF    IRON    IN    ALL    THINGS 

It  may  at  first  sight  seem  unreasonable  to  those  not 
familiar  with  iron  to  place  so  much  importance  upon  the 
influence  of  this  one  article;  but  think  for  a  moment  how 


IRON    THE    BAROMETER  89 

thoroughly  iron  pervades  everything.  Look  about  you, 
out  of  doors  or  in,  and  try  to  find  something  which  was 
produced  by  man  without  the  aid  of  iron.  It  is  used  in 
nearly  every  stage  of  the  production  and  preparation  of 
the  food  we  eat,  in  the  manufacture  of  the  clothing  we 
wear,  and  in  the  construction  of  the  houses  which  shelter 
us.  The  pipes  which  conduct  gas,  water,  oil,  and  other 
substances  under  the  surface;  the  ever-increasing  network 
of  rails  which  lie  upon  the  surface,  and  the  vehicles  of  war 
and  peace,  are  composed  almost  entirely  of  iron.  Each 
year  it  becomes  more  and  more  necessary  to  every  enter- 
prise of  civilized  man.  Withdraw  iron  from  the  manu- 
facturing and  mechanical  industries  of  a  nation,  and  the 
whole  business  of  that  nation  would  become  paralyzed.  * 

When  all  these  things  are  considered  it  is  not  surprising 
that  iron  has  come  to  be  known  as  "The  Barometer  of 
Trade. "  It  is  not  only  the  foundation  of  the  industries, 
but  the  fluctuations  in  its  price  are  so  excessive  and 
abnormal  that  they  have  a  wonderful  influence  upon  the 
prices  of  all  construction  materials. 

The  excessive  and  abnormally  high  price  of  construc- 
tion answers  every  one  of  the  twelve  clues  given  on 
page  80,  which  indicate  where  the  cause  of  these  myste- 
rious depressions  will  be  found. 

If  iron  is  the  foundation  of  the  industries;  if  the  indus- 
tries could  not  exist  in  their  present  volume  without  it; 
if  these  depressions  occur  only  in  the  iron-producing  na- 
tions, and  hi  their  relative  severity  correspond  exactly 
to  the  relative  volume  of  iron  production;  if  there  is 
something  about  the  production  of  iron  which  causes  it  to 
advance  first,  and  to  an  abnormal  degree;  if  these  ad- 
vances have  a  marked  influence  in  bringing  about  a 
corresponding  advance  in  the  price  of  other  materials 
consumed  in  the  industries;  if  the  abnormally  high  prices 
thus  developed  are  always  followed  by  a  depression  even 
in  the  absence  of  other  causes,  and  when  all  outward 
appearances  indicate  a  continuance  of  prosperity;  if 
these  high  prices  have  never  been  reached  without  one 


90      INDUSTRIAL    DEPRESSIONS 

of  these  depressions;  if  all  the  depressions  of  modern 
times  can  be  accounted  for  either  as  the  effect  of  some 
external  cause,  which  is  generally  recognized  and  acknowl- 
edged, or  is  accompanied  by  this  remarkable  and  persist- 
ent chain  of  connections  and  sequences  between  iron 
production,  high  prices,  and  severity  of  industrial  depres- 
sions; and  if  hi  all  these  years  we  find  no  other  generally 
recognized  cause  for  these  depressions,  then  it  certainly 
behooves  us  to  turn  our  attention  to  a  thorough  analysis 
of  the  industries  of  which  iron  is  the  foundation,  for 
within  them  must  rest  the  unknown  cause  of  these  myste- 
rious depressions.  —  How  should  this  be  done? 

WHY  THE  CAUSE  OF  INDUSTRIAL  DEPRESSIONS  HAS  SO 
LONG  REMAINED  A   MYSTERY 

Sir  Conan  Doyle  has  said  that  the  reason  many  mys- 
teries remain  so  long  unsolved  is  that  nearly  every  one 
" reasons  forward,"  whereas  a  reliable  conclusion  can  be 
reached  only  by  " reasoning  backward."  Most  people, 
he  explains,  will  take  a  train  of  events  which  has.  passed 
under  their  observation,  turn  it  over  in  their  minds,  and 
decide  that  these  events  are  the  cause  of  a  specific  result; 
this  he  calls  "  reasoning  forward,  or  synthetically."  He 
maintains  that  the  only  trustworthy  and  effectual  way  to 
solve  a  mystery  is  to  begin  with  the  result,  and  follow 
events  back  by  analysis,  in  the  reverse  of  the  order  of 
their  happening.  At  the  start  you  must  give  no  thought 
or  consideration  to  any  past  event,  or  chain  of  events,  as 
being  responsible  for  the  result.  You  must  start  with 
the  bare  result,  follow  each  clue  back,  step  by  step,  to  its 
inception,  excluding  and  rejecting  everything  which  does 
not  stand  the  test  of  analysis.  By  this  method  you  will 
evolve  "a  chain  of  logical  sequences  without  a  break  or  a 
flaw."  This  is  what  he  calls  " reasoning  backward,  or 
analytically." 

Industrial  depression  is  a  known  result;  what  we  are 
searching  for  is  the  unknown  cause.  If  a  competent 
chemist  were  employed  to  ascertain  the  ingredients  of  a 


IRON    THE    BAROMETER  91 

certain  compound,  he  would  procure  a  sample  of  the  com- 
pound, and  proceed  by  analysis  until  he  had  separated 
each  element  from  the  others,  and  identified  them.  What 
would  one  think  of  a  chemist,  if,  instead  of  proceeding  hi 
this  analytical  manner,  he  should  proceed  in  a  synthetical 
manner,  that  is,  procure  a  few  hundred  different  sub- 
stances, and  proceed  to  mix  them  together  in  several 
hundred  different  ways,  in  hopes  of  discovering  which 
combination  made  up  the  compound?  And  yet,  this  is 
precisely  the  way  the  world  for  fifty  years  has  been  en- 
deavoring to  discover  the  cause  of  industrial  depressions. 

Synthetic  reasoning  will  guide  one  in  any  path  one 
chooses  to  go.  Take,  for  example,  the  hundreds  of  wit- 
nesses who  were  called  before  the  various  government 
commissions  to  give  their  testimony  as  an  aid  in  discover- 
ing the  cause  of  industrial  depressions  in  the  United  States 
(See  Appendices  B  and  C).  Without  exception,  they 
apparently  all  arrived  at  their  opinions  by  a  course  of 
synthetic  reasoning.  Almost  as  great  a  diversity  of 
beliefs  was  revealed  by  the  witnesses  before  the  Royal 
(British)  Commission,  and  the  Commission  appointed  by 
the  French  Chamber  of  Deputies. 

The  United  States  Commissioner  of  Labor,  in  his  First 
Annual  Report,  issued  in  1886  (page  76),  says:  "In  search- 
ing, whether  in  Europe  or  America,  for  the  cause  of  the 
industrial  disease  which  has  affected  the  manufacturing 
world  since  1882,  it  is  interesting  to  note  how  fully 
trade,  profession  or  calling  influence  opinions  given, "  and 
further  states  that:  "As  a  rule,  one's  opinion  can  be  fore- 
seen by  knowing  his  calling  in  life."  Opinions  are  not 
evidence;  they  prove  nothing,  and  would  not  solve  this 
question  in  another  fifty  years. 

In  reviewing  the  testimony  given  by  hundreds  of  wit- 
nesses before  the  various  government  commissions  in 
different  countries,  as  well  as  the  published  works  of  indi- 
viduals, we  do  not  find  a  single  case  in  which  the  analytical 
method  has  been  pursued.  The  First  Annual  Report  of 
the  United  States  Commissioner  of  Labor  is  a  most  valu- 


92      INDUSTRIAL    DEPRESSIONS 

able  work.  It  contains  many  analyses  of  special  things, 
and  is  a  wonderful  collection  of  valuable  tables  and  in- 
formation upon  the  subject  of  which  it  treats,  but  it 
mentions  no  effort  to  solve  the  cause  of  these  depressions 
by  analysis,  and  even  the  summing  up  of  the  commissioner, 
commencing  on  page  291,  under  the  title  of  "  Causes/' 
is  simply  a  very  skilful  effort  to  solve  the  mystery  by  the 
synthetic  method,  although  it  does  not  claim  to  have 
accomplished  the  purpose.  It  is,  however,  an  admirable 
example  of  valuable  knowledge,  which  required  much 
special  research  to  acquire.  The  collection  of  tables  of 
facts  and  the  compilation  of  opinions  are  material  for  the 
analyst,  and  to  that  extent  help  in  the  location  of  the  un- 
known cause. 

Now  the  " known  result"  is  Industrial  Depressions;  not 
the  class  of  depressions  that  have  been  occurring  for 
centuries,  and  which  come  to  all  the  nations  as  a  result  of 
war,  pestilence,  famine,  financial  panics,  or  some  other 
great  calamity,  which  is  known  and  recognized  at  the  time 
to  be  the  cause  of  the  depression;  but  the  new  class  of 
depressions  which  have  developed  within  the  last  century, 
and  that  have  occurred  so  repeatedly  in  the  manufacturing 
nations  in  the  absence  of  any  recognized  cause.  This  is 
the  bare  result.  If  we  would  know  the  cause  or  causes, 
we  "must  start  with  the  bare  result,  and  follow  back  step 
by  step  to  its  inception,  excluding  and  rejecting  everything 
which  does  not  stand  the  test  of  analysis,"  in  the  hope 
that  by  this  method  we  will  evolve,  as  Sir  Conan  Doyle 
declares,  "a  chain  of  logical  sequences  without  a  break  or 
a  flaw,"  and  that  by  this  course  we  shall  find  that  what 
has  appeared  "to  be  the  greatest  mystery  may  be  a  mat- 
ter of  the  most  intrinsic  simplicity." 

Let  us  first  determine  what  relations  the  manufacturing 
and  mechanical  industries  bear  to  the  whole  business  of 
the  nation. 


PART   II 
ANALYSIS  OF  THE  NATION'S  BUSINESS 


CHAPTER  X 

ANALYSIS    OF    THE    NATION^   BUSINESS 

SUBJECTING  the  business  affairs  of  the  nation  to 
^-5  analysis,  we  find  they  are  made  up  chiefly  of  four  sys- 
tems, namely:  agriculture,  the  industries,  commerce,  and 
finance.  Broadly  speaking,  the  agricultural  system  pro- 
duces the  necessities  of  life;  the  industrial  system  pro- 
duces the  materials  of  more  permanent  wealth;  the 
commercial  system  transports  and  distributes  the  prod- 
ucts of  both;  while  the  financial  system  furnishes  the 
medium  for  settling  the  bills  of  all. 

There  is  a  limit  to  agriculture,  and  broadly  speaking 
this  limit  is  reached  when  the  existing  living  beings  are 
provided  with  food  and  clothing,  or,  hi  other  words,  with 
what  we  may  call  the  necessities  of  life.  A  much  larger  sum 
of  money  may  be  paid  for  the  necessities  at  one  period 
than  at  another,  or  by  one  person  than  by  another,  but 
still  each  being  has  but  one  stomach  to  fill  and  but  one 
body  to  clothe.  There  is  a  limit  to  commerce;  this  limit 
is  reached  when  it  has  distributed  the  products  of  agri- 
culture and  the  industries  in  accordance  with  the  demands 
of  the  owners  or  purchasers.  There  is  a  limit  to  finance; 
this  limit  is  reached  when  it  has  adjusted  the  bills  and 
demands  of  existing  business.  On  the  other  hand,  to  the 
industries,  there  is  no  known  limit;  for,  as  has  been  shown 
elsewhere  in  this  volume,  it  is  impossible  to  produce  of 
the  objects  of  permanent  wealth  more  than  man  desires 
to  possess  or  more  than  he  is  able  to  buy,  and  the  products 
of  the  industries  may  be  multiplied  indefinitely  within 
the  borders  of  such  nations  as  possess  adequate  deposits 
of  coal  and  iron,  and  have  the  energy  and  intelligence  to 
use  them  with  wisdom. 

95 


96      INDUSTRIAL    DEPRESSIONS 

GROWTH   OF   COMMERCE 

The  growth  of  commerce  during  the  last  century  is 
shown  by  the  facts  that  there  were  at  its  beginning  no 
railroads  to  carry  products  from  the  interior  of  the  coun- 
try to  the  seaboard;  no  steam  vessels  to  carry  them  from 
continent  to  continent,  and  no  telegraph  system  for 
inter  communication.  Even  as  late  as  1840  there  were 
but  5,420  miles  of  railroads  in  the  world.  In  1850  steam 
vessels  had  a  tonnage  of  but  1,000,000  tons,  of  telegraph 
lines  there  were  but  5,000  miles,  and  of  submarine  cables 
but  twenty-five  miles;  while  in  1903  there  were  500,000 
miles  of  railroads,  a  steamship  tonnage  of  17,000,000 
tons,  land  telegraph  lines  of  1,200,000  miles,  and  sub- 
marine cables  of  200,000  miles. 

The  commerce  of  the  world,  which  was  but  $1,470,- 
000,000  at  the  end  of  the  eighteenth  century,  had  in- 
creased to  $20,715,000,000  at  the  end  of  the  nineteenth 
century.  The  increase  of  the  international  commerce  of 
the  world  was  about: 

$1,000,000,000  in  the  eighty  years  between  1720  and 
1800;  $2,500,000,000  in  the  fifty  years  between  1800  and 
1850,  and  $16,000,000,000  in  the  fifty  years  between 
1850  and  1900.  This  wonderful  growth  in  the  commerce 
of  the  world  came  partly  from  the  increase  in  the  products 
of  agriculture,  but  chiefly  from  the  tremendous  increase 
in  the  products  of  the  manufacturing  and  mechanical 
industries. 

GROWTH  OF  FINANCE 

The  growth  of  finance  is  shown  by  the  commensurate 
increase  in  banking  capital  and  facilities  of  the  banking 
system.  The  banking  capital  of  the  United  States  125 
years  ago  was  represented  by  the  bank  established  by 
Robert  Morris  in  Philadelphia  with  a  capital  of  $400,000. 
In  1910  the  capital,  surplus,  and  undivided  profits  of  the 
banking  institutions  of  the  United  States  amounted  to 
$3,832,000,000,  and  this  money  only  settles  a  small  amount 
of  the  business  of  the  country.  Ninety-seven  per  cent,  of 


ANALYSIS    OF    BUSINESS          97 

international  commerce  is  settled  by  bills  of  exchange; 
ninety-two  per  cent,  of  domestic  trade  by  checks.  This 
wonderful  increase  in  finance  was  brought  about  partly 
by  the  increase  in  the  volume  of  agricultural  products, 
but  chiefly  by  the  increase  in  the  products  of  the  indus- 
tries, and  the  resultant  growth  in  trade,  and  the  trans- 
portation facilities  necessary  to  distribute  these  products. 

INDEPENDENCE  AND  INTERDEPENDENCE  OP  THE  FOUR 

SYSTEMS 

At  the  beginning  of  the  century,  one  giant,  agriculture, 
dominated  and  controlled  all  the  other  business  interests 
of  the  country.  At  the  close,  four  giants  occupied  the 
arena. 

It  was  the  large  growth  of  the  industries  which  brought 
about  the  large  and  contemporaneous  growth  in  both 
commerce  and  finance.  On  the  other  hand,  the  industries 
could  not  have  increased  as  they  did  without  an  increase 
in  commerce  to  distribute  their  products,  nor  could  the 
industries  and  commerce  have  increased  as  they  did  with- 
out an  increase  in  finance  to  adjust  the  bills  of  both. 

Yet,  notwithstanding  the  complicated  interdependence 
of  the  four  great  systems  of  business,  they  are,  neverthe- 
less, four  separate  and  distinct  instruments,  each  propelled 
or  retarded  at  times  by  its  own  independent  forces.  Each 
system  embodies  features  which  are  individual  and 
peculiar  to  itself.  Each  is  radically  different  in  its  nature, 
purposes,  and  functions;  each  requires  for  its  prosecu- 
tion different  kinds  of  knowledge  and  skill;  different 
plans,  powers,  and  appliances;  different  organizations, 
acts,  and  operations.  Hence  any  fundamental  derange- 
ment which  causes  an  increase  or  a  decrease  in  the  volume 
of  one  system  is  necessarily  different  from  a  fundamental 
derangement  which  causes  an  increase  or  a  decrease  in 
either  of  the  other  systems. 

The  independence  of  these  four  systems,  and  their  in- 
terdependence upon  each  other,  may  be  compared  to  the 
alimentary  system,  nervous  system,  circulatory  system, 


98      INDUSTRIAL    DEPRESSIONS 

and  respiratory  system  of  the  human  body.  If  a  human 
being  is  suffering  in  consequence  of  a  diseased  condition 
of  the  alimentary  system,  no  cure  can  be  expected  to 
result  from  a  treatment  of  the  respiratory  system,  nor 
can  the  whole  body  be  in  a  healthy  condition,  unless  all 
its  parts  are  in  a  healthy  condition.  When  the  business 
of  a  nation  is  suffering,  to  effect  a  cure  it  is  neces- 
sary to  find  out  first  in  what  particular  system  the 
malady  is  located.  If  this  is  accomplished  it  may  be 
possible  to  discover  the  microbe  of  the  disease,  other- 
wise there  is  little  hope  of  administering  an  effective 
remedy. 

Three  of  the  business  systems,  as  has  been  shown, 
grew  from  dwarfs  to  giants  simultaneously.  They  not 
only  attained  nine  tenths  of  their  growth  in  one  half- 
century,  but  in  their  progress  and  actions  they  were  so 
intricately  interwoven  and  dependent  upon  each  other 
that  any  cause  of  disorder  in  one  was  not  readily  dis- 
tinguished from  a  cause  of  disorder  in  the  others.  It  is 
extremely  difficult  to  distinguish  between  causes  and 
effects  in  one  chain  of  events;  how  much  more  difficult 
to  so  do  in  dealing  with  four  chains  of  events. 

LIMITS    IN    INCREASES    AND    DECREASES 

There  is  another  feature  connected  with  the  limited 
quality  of  three  of  the  business  mediums,  and  the  un- 
limited quality  of  the  remaining  one,  which  is  also  of 
vital  significance.  Agriculture,  commerce,  and  finance 
not  only  have  their  maximum  limits  which  cannot  be 
exceeded,  but  they  also  have  their  minimum  limits  which 
must  necessarily  be  maintained. 

The  products  of  agriculture,  being  chiefly  composed  of 
the  necessities  of  life,  must  be  kept  up  to  the  standard 
volume  of  the  people's  necessities  at  any  cost.  The 
volume  of  supply  cannot  be  permitted  to  shrink  below 
this  standard  in  the  smallest  degree.  If  any  nation  pro- 
duces a  smaller  volume  of  the  necessities  of  life  than  is 
required,  the  deficiency  must  be  made  up  by  procuring  a 


ANALYSIS    OF    BUSINESS          99 

supply  from  some  nation  which  produced  a  surplus,  else 
the  first-named  nation  must  suffer. 

Commerce  is  not  only  limited  to  transportation  and 
distribution  in  accordance  with  the  demands  of  the  people, 
but  its  facilities  must  necessarily  be  kept  up  to  meet  their 
necessities.  It  is  not  permitted  to  fall  below  this  stand- 
ard. A  like  position,  limit,  and  standard  control  the 
volume  of  finance. 

To  the  industries,  however,  there  is  no  maximum  limit 
nor  minimum  limit  which  must  necessarily  be  main- 
tained. Its  products  are  mainly  the  objects  of  permanent 
wealth,  and,  apart  from  the  necessities,  the  mainte- 
nance of  its  volume  is  not  a  matter  of  life  and  death; 
hence  it  may  fall  off  in  volume  to  almost  any  degree, 
just  as  it  may  rise  in  volume  to  almost  any  degree. 

The  unlimited  possibilities  of  the  industrial  system  are 
illustrated  by  its  relative  volume  at  the  beginning  and  at 
the  end  of  the  nineteenth  century  (see  page  9).  At  the 
beginning  it  required  one  person  out  of  every  five  to 
produce  clothing  for  the  people.  At  the  close,  by  the 
aid  of  machinery,  one  person  could  make  enough  for  250 
persons.  In  1888  the  United  States  produced  600,000 
sewing  machines,  which  could  do  the  work  of  7,200,000 
women.  In  1880  there  were  3,100  shoemaking  machines 
at  work,  producing  150,000,000  pairs  of  shoes  annu- 
ally.* And  who  will  say  that  the  maximum  limit  to 
the  effectiveness  of  man's  productive  power  by  the  aid 
of  machinery  has  been  reached? 

The  unlimited  character  of  the  industries  is  vividly 
illustrated  by  the  fact  that  the  increase  of  wealth  in  the 
United  States  in  the  first  four  years  of  the  present  cen- 
tury was  greater  in  amount  ($18,500,000,000)  than  the 
entire  accumulated  wealth  of  the  United  States  hi  1860 
($16,250,000,000). 

These  facts  all  point  unmistakably  to  the  conclusion 

*  In  1900  the  capacity  to  produce  had  been  increased  to  400,000,000 
pairs  and  the  quantity  actually  made  to  219,000,000  pairs.  See  "Boots 
and  Shoes,"  The  Americana. 


100    INDUSTRIAL    DEPRESSIONS 

that  the  cause  of  booms  and  depressions  must  be  within 
the  industries,  where  great  increases  and  decreases  in  the 
volume  of  business  can  and  do  take  place,  and  not  in  the 
other  three  business  mediums,  where  increases  and  de- 
creases cannot  take  place  to  any  comparable  degree. 
The  search  for  the  cause  of  the  mysterious  industrial  de- 
pressions should,  therefore,  be  made  within  the  industries. 

HOW  THE  SEARCH  SHOULD  BE  MADE 

In  searching  for  the  cause  of  a  disturbance  in  one  of 
the  business  systems  by  analytic  methods,  the  searcher 
should  not  only  analyze  the  system  apart  from  the  other 
three,  as  a  first  necessity,  but  in  the  entire  process  of  his 
investigation  should  carefully  exclude  from  consideration 
any  of  the  occurrences,  functions,  instrumentalities,  or 
effects  which  were  known  to  be  permanently  united  as 
an  element  or  an  original  quality  of  any  of  the  other  three. 
In  other  words,  to  detect  the  hidden  internal  cause,  he 
must  insure  himself  against  complication  by  rigidly  ex- 
cluding everything  connected  with  known  and  external 
causes. 

Nature  and  natural  laws  are  very  much  the  same 
wherever  you  find  them.  The  analogy  between  the  work- 
ing of  these  laws  on  the  human  system  and  on  the  indus- 
trial system  is  very  close.  The  disorders  from  which  the 
human  system  suffers  may  be  divided  into  two  classes: 
those  which  result  from  external  causes,  and  those  which 
result  from  internal  causes.  If  a  disorder  result  from  an 
external  cause,  as  for  instance,  from  a  blow,  the  cause  of 
the  disorder  is  recognized  and  known  at  once,  —  there 
is  no  mystery  about  it;  but  if  the  disorder  result  from 
some  internal  cause,  the  malady  in  some  cases  may  pro- 
gress for  months  or  even  years  without  its  presence  being 
even  suspected  by  the  victim.  Even  after  the  disorder 
has  revealed  its  presence,  as  for  instance  hi  breaking  out 
upon  the  surface,  the  initial  cause  may  still  be  so  hidden 
as  to  defy  detection,  even  after  the  most  earnest  search. 

It  is  precisely  the  same  with  the  disorders  of  the  indus- 


ANALYSIS    OF    BUSINESS        101 

trial  system.  If  depression  in  the  industries  result  from 
an  external  cause,  such  as  war,  pestilence,  famine,  bad 
crops,  commercial  or  financial  crises,  the  cause  is  at  once 
recognized  and  known.  There  is  no  mystery  surround- 
ing it;  but  if  the  disorder  result  from  some  internal  cause, 
some  microbe  within  the  industries  themselves,  it  may  go 
on  and  reach  a  condition  of  gravity  before  it  is  even  sus- 
pected, and  even  after  its  presence  is  revealed  by  a  great 
check  to  all  industrial  enterprises,  the  real  cause  may  not 
be  suspected,  simply  because  the  microbe  was  hidden  and 
did  its  fatal  work  before  the  disease  made  its  presence 
known  by  breaking  out  upon  the  surface. 

In  searching  for  the  cause  of  these  mysterious  indus- 
trial depressions,  therefore,  the  search  must  be  confined 
exclusively  to  the  industries  and  such  things  as  are  dis- 
tinctly a  part  of  them;  all  things  which  are  distinctly  a 
part  of  the  other  three  systems  must  be  rigidly  excluded 
from  consideration. 

IN  WHAT  PART  OF  THE   INDUSTRIES   SHOULD  THE   SEARCH 

BE  MADE? 

Among  the  facts  discovered  by  the  government  com- 
missions is,  that  the  volume  of  business  in  the  necessities 
of  life  is  substantially  the  same  in  dull  times  as  it  is  hi 
active  times.  Let  us  analyze  this  and  determine  whether 
or  not  the  conclusion  commends  itself  to  our  minds  as 
reasonable  and  true. 

The  workers  of  the  United  States,  meaning  all  persons 
engaged  in  any  gainful  occupation,  comprise  about  one 
third  of  the  population.  If  one  fifth  of  the  workers  were 
thrown  out  of  employment,  it  would  be  an  unusually 
large  percentage,  and  yet  would  amount  to  only  about 
one  fifteenth  of  the  population,  and  that  one  fifteenth  and 
those  dependent  upon  them  would  not  stop  eating  or  go 
unsheltered  or  unclothed.  In  some  way  they  would  live 
and  continue  to  consume  the  necessities  of  life.  The  other 
four  fifths  of  the  workers  being  still  employed,  they,  as 
well  as  those  dependent  upon  them,  would  make  little  or 


102    INDUSTRIAL    DEPRESSIONS 

no  change  in  their  consumption  of  necessities.  Whatever 
change  these  people  made  would  be  chiefly  hi  a  reduction 
of  their  outlay  in  luxuries,  such  as  ornaments  and  per- 
manent improvements.  Then,  again,  we  have  the  large 
number  of  people  who  have  accumulated  savings  to  draw 
upon  when  out  of  employment,  and  the  large  number  of 
well-to-do  people  who  live  upon  the  income  derived  from 
the  hundred  billions  of  wealth  which  has  been  accumu- 
lated in  this  country.  Another  reason  that  the  fluctua- 
tion in  the  production  of  the  necessities  of  life  is  small 
is  because  the  demand  is  comparatively  regular,  hence 
the  supply  can  be,  and  is,  more  nearly  adjusted  to  it. 

It  must  be  admitted,  therefore,  that  this  conclusion  of 
the  government  commissions  is  not  only  reasonable  but 
true,  and,  if  true,  then  the  great  periodic  increase  and 
decrease  in  production  must  be  outside  of  the  necessities 
of  life.  Now  what  are  the  chief  products  of  man's  labor 
outside  of  the  necessities  of  life?  In  the  absence  of 
statistics  this  question  can  be  answered  approximately 
by  ascertaining  what  is  the  sum  total  of  the  accumulated 
products  of  man's  industrial  labor  outside  of  the  necessi- 
ties of  life. 

The  wealth  of  the  United  States  in  1904,  taken  from  the 
report  of  the  Bureau  of  Census,  Department  of  Commerce 
and  Labor,  was  $107,104,211,917,  classified  as  follows: 

Real  property  taxed $55,510,247,564 

Real  property  exempt 6,831,244,570 

Steam  and  street  railways  and  equipment;  telegraph 

and  telephone  systems;  electric  light  plants; 

water-works;  shipping  and  canals 16,085,298,909 

Manufactured  products 7,409,291,668 

Agricultural  products 1,899,379,652 

Mining  products 408,066,787 

Imported  merchandise 495,543,685 

Manufacturing  machinery,  tools,  etc 3,297,754,180 

Farm  implements  and  machinery 844,989,863 

Furniture,  carriages,  etc 5,750,000,000 

Clothing  and  personal  ornaments 2,500,000,000 

Livestock 4,073,791,736 

Gold  and  silver  coin  and  bullion 1,998,603,303 

Total                            $107,104,211,917 


ANALYSIS    OF    BUSINESS 


103 


To  answer  the  question:  "What  are  the  chief  products 
of  man's  labor  outside  of  the  necessities  of  life"?  the  above 
items  must  be  reclassified  and  separated  into  four  divi- 
sions: first,  land,  which  is  not  a  product  of  man's  labor; 
second,  the  necessities  of  life  and  the  machinery  neces- 
sary for  their  production;  third,  construction;  fourth,  all 
other  property.*  The  following  table  gives  the  re-classi- 
fication of  the  one  hundred  and  seven  billions  of  wealth 
on  the  basis  named: 

WEALTH  OF  THE  UNITED  STATES  IN  1904,  RECLASSIFIED. 


Land 

Necessities 

Construction 

All  other 
property 

Real  property. 
Land 

831,170,746,067 

Buildings    and   other 
improvements    . 

$31,170,746,067 

Railroads    and   other 

14,085,298,909 

$2,000,000  000 

Manufactured    prod- 
ucts 

6,009  291  668 

1  400  000  000 

Agricultural  products 
Mining  products 

$1,899,379,652 
108,066,787 

100,000,000 

200  000  000 

Manufactured      ma- 
chinery, tools,  etc. 

3,297,754  180 

Farm  implements  and 
machinery  

844,989,863 

Furniture,    carriages, 
etc  

5,750,000,000* 

Clothing  and  personal 
ornaments  

2,000,000,000 

500,000,000 

Imported      merchan- 
dise       .    . 

495  543  685 

Live  stock  

4,073,791,736 

Gold  and  silver  . 

1,998,603,303 

Totals    

$31,170,746,067 

$8,926,228,038 

$51,365,336,644 

$15,641,901,168 

RECAPITULATION 

Land $31,170,746,067 

Necessities 8,926,228,038    $40,096,974,105 


Construction $51,365,336,644 

All  other  property  ....        15,641,901,168      67,007,237,812 


Total $107,104,211,917 


*  Just  what  proportion  of  the  above  sixty-two  billions  of  real  property 
is  land  and  what  proportion  is  buildings  cannot  be  accurately  stated,  but 
the  authorities  rate  buildings  and  other  improvements,  in  the  United 
States  and  Great  Britain,  as  more  than  half  of  the  whole,  so  that  this  item 
has  been  divided  equally  between  land  and  construction,  which  is  within 
bounds.  The  sixteen  billions  in  public  improvements  has  been  divided 


104    INDUSTRIAL    DEPRESSIONS 

CONSTRUCTION  IS   THE    MAIN    THING   WHICH    INCREASES 
AND   DECREASES 

From  the  above  table  we  see  that  after  deducting  land 
and  the  necessities  of  life,  construction,  in  round  numbers, 
is  fifty-one  billions  of  the  remaining  sixty-seven  billions, 
or  say  77  per  cent,  of  all  industrial  products  of  the  nation, 
the  large  increases  or  decreases  of  which  create  what  we  call 
booms  and  depressions.  Even  this  does  not  fully  represent 
the  preponderating  importance  of  construction,  for,  contin- 
uing the  analysis,  we  find  that  when  an  additional  resi- 
dence is  occupied  it  involves  the  purchase  of  furniture, 
carpets,  utensils,  ornaments,  etc. ;  that  when  an  additional 
store  is  opened  it  involves  the  purchase  of  an  additional 
stock  of  goods;  that  when  an  additional  factory  is  opened 
it  must  be  equipped  with  machinery  and  provided  with 
raw  materials  for  manufacture  into  other  products  before 
it  can  be  operated;  that  when  an  additional  railroad  is 
put  hi  operation  or  a  steamship  is  put  in  commission,  it 
necessitates  the  purchase  of  all  the  various  furnishings 
and  vehicles  essential  to  their  operation;  in  short,  that 
with  the  large  increase  or  decrease  in  the  volume  of  con- 
struction comes  a  commensurate  increase  in  the  demand 
for  nearly  all  the  smaller  and  more  numerous  articles  of 
permanent  wealth,  these  being  chiefly  included  in  the 
remaining  23  per  cent.,  which  is  subject  to  large  increases 
and  decreases  in  volume. 

Note,  however,  the  fact  that  the  increases  and  decreases 
in  the  volume  of  smaller  articles  not  only  come  after  con- 
struction, but  depend  chiefly  upon  new  construction. 
People  do  not  buy  furniture,  carpets,  utensils,  goods, 
machinery,  cars,  locomotives,  etc.,  and  store  them  in  ware- 
by  putting  fourteen  billions  under  the  head  of  construction  (the  estimated 
value  of  the  plants),  and  two  billions  as  the  estimated  value  of  the  equip- 
ment. Manufactured  products  have  been  divided  into  the  proportion 
that  construction  bears  to  all  the  other  industrial  products  on  the  suppo- 
sition that  this  proportion  of  the  manufactured  products  comprises  con- 
struction materials.  There  are  no  existing  statistics  from  which  these 
divisions  can  be  made  exactly  accurate,  but  the  divisions  made  above  are 
sufficiently  exact  for  the  purpose. 


ANALYSIS    OF    BUSINESS         105 

houses  or  on  vacant  lots,  and  then  build  their  houses, 
stores,  factories,  ships,  and  railways  into  which  they  may 
put  them,  or  upon  which  they  may  run  them.  They  first 
construct  and  then  buy  the  things  necessary  to  furnish  or 
equip  the  new  construction.  It  follows  that  construction 
proper  is  not  only  77  per  cent,  of  the  industrial  produc- 
tion from  which  the  increase  and  decrease  chiefly  come, 
but  that  construction  also  controls  a  large  share  of  the 
increase  and  decrease  in  the  remaining  23  per  cent. 

From  these  facts,  it  is  quite  obvious  that  what  we 
call  booms  result  almost  entirely  from  the  great  peri- 
odic increase  in  the  volume  of  construction,  and  what  we 
call  industrial  depressions  result  almost  entirely  from  the 
great  falling  off  in  the  volume  of  construction. 


CHAPTER  XI 

ANALYSIS    OF   CONSTRUCTION 

FOR  the  purpose  of  analysis,  construction  may  be 
divided  tentatively  into  two  parts:  first,  that  por- 
tion which  never  ceases,  but  goes  on  during  panics,  depres- 
sions, wars,  etc.,  which  for  the  purpose  of  illustration  will 
be  called  necessity  construction.  This  includes  repairs, 
replacements,  and  such  new  construction  as  is  made  neces- 
sary by  the  growth  of  population,  etc.  Second,  that 
portion  which  at  times  so  greatly  increases  and  decreases 
as  to  create  what  we  call  booms  and  depressions,  which 
for  the  purpose  of  illustration  will  be  called  optional  or 
investment  construction.  This  includes  additional  houses, 
stores,  factories,  railroads,  terminals,  ships,  docks,  tunnels, 
etc.,  which  are  not  put  up  from  necessity  as  above  noted, 
but  as  an  investment  from  which  the  "investors  expect  to 
derive  additional  income. 

NECESSITY  CONSTRUCTION   VS.  INVESTMENT    CONSTRUCTION 

As  an  aid  to  the  analysis  of  construction  generally,  the 
diagram  (Appendix  L)  has  been  prepared.  " Necessity" 
construction  is  represented  on  this  diagram  by  the  space 
between  the  base  line  B  B  and  the  line  C  C.  " Optional" 
or  "  hi  vestment"  construction  is  represented,  tentatively, 
by  the  space  between  the  line  C  C  and  the  line  of  actual 
iron  consumption  F  F. 

Many  people  in  the  industrial  nations  believe  that 
prosperity  is  overdone  when  all  the  breadwinners  of  a 
country  are  fully  employed,  earning  and  buying;  and  most 
of  them  believe  that  twin  absurdity,  that  during  a  long 
period  of  depression  the  maintenance  and  repairs  to  exist- 
ing property  fall  so  far  behind,  that  the  ultimate  necessity 

106 


ANALYSIS    OF   CONSTRUCTION    107 

to  replace  and  repair  existing  property  eventually  brings 
on  a  boom.  Neither  of  these  theories  will  stand  the  test 
of  analysis.  Necessary  construction,  repairs  and  main- 
tenance, go  on  all  the  time,  even  during  a  financial  panic 
or  any  other  startling  calamity,  and  their  volume  even  in 
depressed  times  is  about  two  thirds  as  much  as  the  whole 
volume  of  construction  in  the  most  prosperous  times. 
This  is  not  only  made  clear  by  diagram,  Appendix  L,  but 
it  is  confirmed  by  the  records  of  iron  consumption  for 
fifty  years  or  more. 

These  periods  of  great  increase  in  construction  come 
from  plain,  simple  business  conditions  and  motives. 
When  the  cost  of  construction  reaches  such  an  abnormally 
low  figure  that  the  bargain-counter  instinct  is  aroused  in 
the  minds  of  a  large  number  of  the  far-seeing  ones  who 
hold  the  purse-strings  of  the  country,  the  desire  for  gain 
prompts  them  to  take  advantage  of  the  conditions  while 
they  may.  These  are  the  early  birds;  but  gradually  the 
whole  community  follows,  and  the  boom  is  soon  at  its 
height.  That,  in  a  nutshell,  is  what  creates  an  industrial 
revival. 

When  the  contracts  for  construction  hi  five  great 
nations  silently  and  mysteriously  increase  50  to  100  per 
cent,  within  a  few  months,  it  is  a  great  event,  and  it  can- 
not be  called  a  " mental  wave"  or  an  epidemic  of  repairs, 
any  more  than  it  can  be  called  a  cadence  in  lumber  or  an 
anthem  in  brick. 

IT  IS  INVESTMENT  CONSTRUCTION  WHICH  LIFTS  THE  COUN- 
TRY TO  A  NEW  LEVEL  OF  CAPACITY 

It  is  not  maintenance  and  repairs  to  existing  property 
which  produce  a  boom.  It  is  a  great  volume  of  new  and 
additional  construction,  made  chiefly  for  investment, 
which  greatly  increases  the  permanent  wealth  of  the  coun- 
try and  lifts  its  wealth-producing  capacity  to  a  new  and 
higher  plane.  When  a  depression  follows,  the  capacity 
of  the  country  does  not  sink  down  to  the  old  level.  It 
substantially  moves  forward  on  its  new  level  until  the 


108    INDUSTRIAL    DEPRESSIONS 

next  revival  in  investment  construction,  when  it  takes 
another  great  step  forward  and  attains  a  still  higher  plane. 
This  can  be  made  more  obvious  by  the  following  table, 
which  gives  an  analysis  of  iron  production  for  the  last 
fifty  years : 

GAINS  IN   IRON  PRODUCTION  DURING   BOOMS  AND   GAINS  OR  LOSSES 
DURING  FOLLOWING  DEPRESSIONS. 


Per- 
centage 
of  in- 

Year 

Iron  pro- 
duction 

Gain 

Lapse 
of  time 

Change  during 
depression 

Lapse 
of 
time 

Percent- 
age of 
boom  gain 
lost  in 

crease 

years 

Gain 

Loss 

years 

depres- 
sions 

1852 

500,000 

57 

1856 

788,000 

288,000 

4 

58,000 

7 

1863 

846,000 

100 

1869 

1,711,000 

854,000 

6 

5,000 

2 

iSo  of  1 

1871 

1,706,000 

49 

1872 

2,548,000 

842,000 

1 

247,000 

6 

29 

1878 

2,301,000 

100 

1882 

4,623,000 

2,322,000 

4 

579,000 

3 

25 

1885 

4,044,000 

127 

1890 

9,202,000 

5,158,000 

5 

579,000 

6 

12 

1896 

8,623,000 

57 

1899 

13,620,000 

4,995,000 

3 

(Part 

169,000 

of 

1900 

13,789,000 

1) 

30 

1903 

18,009,000 

4,220,000 

3 

1,512,000 

1 

36 

1904 

16,497,000 

56 

1907 

25,781,000 

9,284,000 

3 

If  the  increased  construction  which  takes  place  during 
a  boom  was  for  maintenance  and  repairs,  then  the  volume 
of  construction  would  fall  back  to  the  old  plane  when  the 
next  depression  came.  The  fact  that  it  does  not  fall 
back  is  evidence  that  the  boom  is  made  up  of  new  and 
additional  construction  which  adds  that  much  to  what  we 
call  the  permanent  wealth  of  the  country,  and  raises  its 
producing  capacity  to  a  higher  level. 

REMARKS 

It  was  after  the  boom  of  1871  and  1872  that  some  of 
the  authorities  (see  page  64)  were  telling  the  world  that 


ANALYSIS   OF  CONSTRUCTION    109 

the  civilized  countries  were  now  fully  equipped  with  eco- 
nomic tools;  that  the  work  of  the  future  must  necessarily 
be  repair  and  replacement  rather  than  new  construction, 
and  that  it  was  not  likely  that  there  would  be  again  an 
economic  progress  comparable  to  that  which  had  just 
closed.  And  yet  the  United  States  in  1907  produced 
nearly  1000  per  cent,  more  new  construction  than  she  did 
in  1872.  This  cannot  be  accounted  for  by  the  increase 
in  population,  for  that  was  only  a  little  more  than  doubled. 
It  was  chiefly  the  increase  in  fixed  capital  in  the  shape  of 
factories,  mills,  mechanical  appliances,  etc.,  which  was 
responsible  for  our  capacity  to  produce  and  consume 
25,700,000  tons  of  iron  and  other  construction  material 
in  proportion  in  1907.  It  was  due  to  the  several  suc- 
cessive steps  by  which  the  country  reached  a  higher  plane 
on  each  revival  of  prosperity  that  it  produced  in  1907  an 
amount  of  wealth  which  surpassed  all  previous  records 
in  the  world's  history. 

As  shown  by  the  above  table,  the  country,  through 
periods  of  industrial  depression,  has  lost  twenty-six  years 
of  possible  increase  in  wealth  in  the  last  fifty-five  years. 
In  the  last  nine  years  of  increase,  between  1896  and  1907, 
the  annual  production  of  iron  has  increased  16,500,000 
tons.  Figuring  on  the  actual  cumulative  rate,  it  is  obvious 
that  if  all  the  breadwinners  of  the  land  had  been  fully 
employed  the  whole  fifty-five  years,  the  country  would 
have  passed  the  twenty-five  million-rate  of  iron  produc- 
tion so  many  years  ago  that  we  would  have  been  well  up 
to  the  fifty  million-rate  in  1907. 

These  checks  to  production,  which  we  call  industrial 
depressions,  are  simply  unnatural  and  unnecessary  checks 
to  the  country's  possible  growth  in  wealth.  The  natural 
and  healthful  condition  of  the  country,  morally,  physically, 
and  financially,  is  for  all  the  breadwinners  of  the  land  to 
be  employed,  earning,  and  thus  made  able  to  pay  for  what 
they  and  those  dependent  upon  them  need  for  their  sus- 
tenance and  enjoyment.  If  all  these  gaps  in  the  growth 
of  production  illustrated  by  the  above  table  had  been 


110    INDUSTRIAL    DEPRESSIONS 

filled  by  maximum  production,  the  nation  would  not  only 
have  been  that  much  farther  advanced  in  permanent 
wealth,  but  the  suffering  which  was  caused  by  the  enforced 
idleness  of  millions  of  our  people  during  those  twenty-six 
years  of  depression  would  have  been  avoided. 

There  is  nothing  so  disastrous  to  a  nation 's  business 
as  industrial  booms  and  depressions,  and  the  unnatural 
and  abnormal  fluctuations  in  the  price  of  construction  are 
responsible  for  both.  Those  who  are  engaged  in  business 
are  deceived  by  the  great  fictitious  and  temporary  advance 
in  market  values  during  a  boom,  and  harmed  by  the  great 
declines  which  necessarily  follow  during  a  depression. 

These  violent  changes  in  prices  are  a  prolific  source  of 
discontent  and  consequent  strikes.  The  workers  strike 
when  these  abnormal  advances  come,  to  get  their  share 
of  the  supposed  profits,  and  when  prices  go  down  the 
employers  must  at  times  reduce  wages  to  save  themselves 
from  manufacturing  at  a  loss,  and  the  workers  again 
strike,  in  the  vain  effort  to  prevent  these  reductions. 

Then  the  country  goes  through  a  period  of  what  is 
termed  liquidation  and  adjustment,  during  which  prices 
and  profits  sink  to  a  very  low  level.  When  the  financial 
and  industrial  skies  are  all  clear,  comes  renewed  prosperity, 
which  should  be  so  thoroughly  anticipated  that  its  con- 
tinuance might  be  possible  through  adequate  preparation 
without  the  disastrous  boom  in  prices.  Through  the  lack 
of  this  preparedness,  the  supply  of  important  materials 
is  so  hopelessly  short  of  the  demand  that  prices  of  some 
articles  of  even  vital  importance  advance  one,  two,  or 
three  hundred  per  cent.,  and  all  business  is  again  upset 
for  another  period  of  years. 

DEMAND  FOR  IMMEDIATE  DELIVERY  VS.  DEMAND  FOR 
FUTURE  DELIVERY 

In  the  "First  Annual  Report  of  the  Commissioner  of 
Labor  on  Industrial  Depressions"  published  by  the  United 
States  Government  in  1886,  "Falling  Prices "*  is  specially 

'Attention  was  called  to  this  on  page  73. 


ANALYSIS    OF    CONSTRUCTION    111 

treated  as  among  the  chief  alleged  causes  of  industrial 
depressions.*  This  is  a  plausible  theory,  and  many  high 
authorities  have  been  deceived  by  it.  The  mistaken 
belief  arises  from  the  fact  that  the  fall  in  prices  of  con- 
struction materials  is  the  first  occurrence  which  attracts 
attention,  but  analysis  shows  that  it  is  not  the  first  to 
occur.  First  comes  the  falling  off  in  demand  for  con- 
struction materials,  after  which  follows  the  resultant  fall 
in  prices.  As  long  as  the  demand  for  anything  exceeds 
the  supply,  prices  are  kept  up.  When  the  supply  exceeds 
the  demand,  prices  fall.  This  is  a  self-evident  truth. 
Any  theory  based  upon  the  reverse  of  this  truth  is  a 
virtual  contradiction  of  the  natural  and  inflexible  working 
of  the  law  of  supply  and  demand. 

On  reference  to  Diagram  L,  it  will  be  observed  that  the 
price  of  iron  commenced  to  fall  rapidly  in  February,  1900, 
while  the  actual  consumption  of  iron  kept  up  to  boom 
proportions  for  five  months  thereafter.  Again,  the  price 
commenced  to  fall  rapidly  in  October,  1902,  while  actual 
consumption  kept  on  increasing  rapidly  for  eight  months 
thereafter.  Again  the  price  commenced  to  fall  in  May, 
1907,  while  actual  consumption  kept  up  to  boom  propor- 
tions for  five  months  thereafter.  During  all  of  these 
periods  there  was  a  famine  in  the  iron  supply.  Here  are 
three  cases,  so  recent  as  to  be  fresh  in  the  minds  of  the 
people,  and  each  of  them  apparently  seems  to  be  a  direct 
contradiction  of  the  law  of  supply  and  demand.  Now 
what  were  the  facts? 

To  analyze  this  matter  properly  we  will  divide  the 
element  of  demand  into  two  classes,  namely,  the  demand 
for  immediate  delivery  and  the  demand  for  future  delivery. 

Many  articles  that  are  bought  and  sold  are  carried  in 
stock  by  the  manufacturers  or  dealers.  The  people 
being  aware  of  this  do  not  usually  purchase  such  articles 
until  they  need  them,  consequently  the  demand  for  these 
articles  is  almost  entirely  a  demand  for  immediate  delivery. 
For  such  articles  the  falling  off  in  demand,  the  falling  off 

*  First  Annual  Report  of  the  Commissioner  of  Labor,  page  79. 


INDUSTRIAL    DEPRESSIONS 

in  price,  and  the  falling  off  in  delivery,  all  come  at  sub- 
stantially the  same  time;  consequently  the  public  are 
constantly  reminded  of  how  perfectly  supply  and  demand 
control  the  prices  of  all  immediate  delivery  articles. 

In  the  case  of  construction  materials,  however,  it  is 
entirely  different.  If  the  contemplated  work  is  of  any 
considerable  magnitude,  it  may  be  several  weeks  or 
months  after  the  price  is  fixed  and  a  contract  for  the 
materials  signed  before  the  delivery  of  materials  is 
even  commenced,  and  several  months,  or  even  a  year 
or  two,  before  the  delivery  of  materials  is  completed. 
The  fixing  of  prices  on  construction  material  must 
therefore  antedate  the  delivery  by  several  months, 
or  even  years,  according  to  the  magnitude  of  the  enter- 
prise and  the  rapidity  of  the  work  done  in  its  execution. 
To  give  a  practical  illustration  of  how  actual  contracts 
for  construction  materials  are  frequently  negotiated  and 
closed,  we  have  permission  to  quote  from  the  private 
telegraph  code  of  the  selling  agents  for  a  large  number  of 
pig  iron  producers.  In  doing  this  we  shall  give,  first,  the 
code  words  verbatim,  followed  by  their  meaning,  and  the 
dispatch  thus  translated  will  represent  the  manner  in 
which  hundreds  of  large  contracts  were  closed  by  this 
concern.  The  code  words  were  as  follows:  "A.B.  &  Co. 
Magnet  —  Amends  —  Squal  —  April —  Saint  —  Taken — 
Malone  —  Name  price  —  Maimed  —  Quart  —  Major  — 
Making."  The  translation  of  the  above  is  as  follows: — 
"A.  B.  &  Co.  About  to  bid  on  some  work  and  wish  an 
offer  on  —  5000  tons  number  two  foundry  pig  iron  —  de- 
liverable proportionately  during  ten  months  commencing 
in  —  April  —  deliverable  F.O.B.  cars  at  Chicago  —  terms 
cash  on  tenth  of  month  following  delivery  —  parties  will 
not  make  an  offer,  they  have  asked  different  parties  for 
bids,  and  when  bids  are  all  in  they  will  accept  the  most 
favorable  and  reject  balance — name  price — open  until 
award  is  made  for  work  which  will  probably  be  Thursday 
of  next  week  —  they  will  advise  us  of  the  rejection  or 
conditional  acceptance  of  your  bid  —  if  accepted  condi- 


ANALYSIS    OF    CONSTRUCTION    113 

tionally,  it  will  become  a  sale  if  the  work  is  awarded  to 
them,  and  become  void  if  the  work  is  not  awarded  to 
them."  Now  this  manner  of  buying  is  not  exceptional; 
all  prudent  contractors  must  necessarily  protect  them- 
selves during  the  negotiation  for  all  large  constructive 
work,  as  well  as  during  its  execution.  Now  if  the  lapse 
of  time  between  the  naming  of  the  price  and  the  closing  of 
the  contract  be,  for  instance,  one  month;  the  delivery 
of  materials  be  commenced  in  three  months  after  the 
contract  is  signed;  the  delivery  extended  over  ten  months 
as  per  contract,  and  the  work  be  completed  in  two  months 
after  the  materials  are  all  delivered,  we  have  a  total  of 
sixteen  months  between  the  making  of  the  price  and  the 
completion  of  the  work.  Now  a  constructive  work  which 
requires  no  longer  time  than  sixteen  months  would  not 
be  a  very  extensive  enterprise.  If  it  were  a  large  structure 
requiring  deep  excavation  through  rock  for  one  or  more 
stories  below  the  surface,  it  might  be  more  than  sixteen 
months  before  the  first  construction  materials  would  be 
needed,  and  the  whole  work  would  probably  occupy  two  or 
more  years  to  complete.  The  demand  for  construction 
materials,  therefore,  is  almost  entirely  a  demand  for  future 
delivery  and  in  large  enterprises  a  very  extended  delivery. 

In  all  such  cases,  therefore,  the  determination  of  the 
amount  of  materials  to  be  used  and  the  fixing  of  the  prices 
to  be  paid  for  them,  becomes  the  time  of  demand.  This 
time  must  antedate  the  actual  delivery  of  the  materials 
and  the  completion  of  the  structure,  by  at  least  as  much 
as  the  signing  of  the  contract  antedates  these  occurrences. 
This  may  be  several  months  or  perhaps  one  or  more  years. 

Unfortunately  there  are  no  statistics  gathered  or  pub- 
lished, to  keep  the  people  advised  either  of  the  extent  of 
the  contracts  being  made  for  construction  from  time  to 
time,  or  of  the  rate  at  which  this  contracted  construction 
is  being  completed.  In  Appendix  L,  the  line  DD,  which  is 
drawn  to  represent  the  rate  of  demand  for  construction, 
is  the  result  of  a  careful  analysis  and  is  believed  to  repre- 
sent fairly  the  volume  of  construction  contracted  for  from 


114    INDUSTRIAL    DEPRESSIONS 

month  to  month  during  the  twelve  years  between  1896 
and  1907.  The  line  FF  being  the  exact  rate  of  iron  con- 
sumption, must  correctly  represent  the  rate  at  which  this 
construction  was  completed. 

On  reference  to  that  diagram,  it  will  be  observed  that 
hi  the  boom  period  of  1899,  the  demand  for  extra  construc- 
tion commenced  to  fall  off  in  February,  1899.  Four 
months  later  the  extra  demand  had  nearly  ceased,  and  in 
February,  1900,  the  price  of  iron  commenced  to  fall  off. 
Now  the  amount  of  actual  construction  was  increasing 
all  this  time,  and  kept  on  increasing  until  April,  1900, 
when  the  extra  volume  of  construction  contracted  for  in 
the  low-priced  period  was  practically  completed.  Three 
months  later  the  volume  of  actual  construction  was  nearly 
down  to  the  line  CCy  which  is  supposed  to  represent  the 
necessity  basis,  though,  in  effect,  it  is  a  depression  basis. 

The  following  table  gives  the  data  of  these  occurrences 
during  the  three  like  periods  between  1898  and  1908: 


First  Event 

Second  Event 

Third  Event 

Fourth  Event 

Fifth  Event 

Actual  con- 

Demand 

Demand 

Extra 

struction  had 

for  extra 
construc- 
tion com- 
menced 

Lapse 
of  time, 
mos. 

for  extra 
construc- 
tion had 
about 

Lapse 
of  time, 
mos. 

Prices 
com- 
menced 
to  decline 

Lapse 
of  time, 
mos. 

construc- 
tion 
about 
com- 

Lapse 
of  time, 
mos. 

fallen  off  to 
a  depression 
basis  which 
attracted 

to  fall  off 

ceased 

pleted 

general 

attention 

Feb.  1899 

4 

June  1899 

8 

Feb.  1900 

2 

April  1900 

3 

July   1900 

Dec.  1901 

7 

July  1902 

3 

Oct.  1902 

8 

June  1903 

5 

Nov.  1905 

Oct.  1905 

10 

Aug.  1906 

9 

May  1907 

8 

Jan.  1908 

Oct.    1907* 

*Panic. 

Now,  of  the  five  events  which  occurred  in  regular 
sequence  in  the  decline  of  the  three  booms  illustrated  by 
the  above  table,  the  only  events  of  which  the  public  had 
any  knowledge  were  the  third  and  fifth,  that  is,  the  fall  in 
prices,  and  the  falling  off  in  the  volume  of  actual  construc- 
tion. No  statistics  were  either  gathered  or  published  to 
inform  them  when  the  contracts  for  extra  construction 
had  commenced  to  fall  off,  nor  when  they  had  about 


ANALYSIS    OF    CONSTRUCTION     115 

ceased,  nor  when  the  extra  construction  which  created  the 
boom  was  about  completed;  consequently,  when  it  was 
actually  completed,  and  mechanics  commenced  to  be 
discharged  in  great  numbers  all  over  the  country,  the 
people  were  greatly  surprised,  and  did  not  know  how  to 
account  for  it.  Later,  they  remembered  that  prices  had 
commenced  to  fall  off  several  months  before  the  construc- 
tion fell  off,  so  they  believed  that  the  fall  in  prices,  which 
was  the  first  occurrence  they  became  aware  of,  was  the 
cause  of  the  industrial  collapse. 

The  sequence  of  events  preceding  the  six  periods  of 
depression  between  1837  and  1886  was  precisely  the  same 
as  in  the  three  cases  described  in  this  chapter.  In  all 
these  cases,  the  natural  working  of  the  law  of  supply  and 
demand  was  fully  demonstrated.  In  all  these  cases,  the 
falling  off  in  the  demand  for  construction,  as  evinced  by 
the  falling  off  in  the  making  of  construction  contracts, 
although  unnoticed,  was  the  first  to  occur,  while  the  falling 
off  in  prices  was  the  second  to  occur,  although  the  first  to 
attract  attention.  The  actual  sequence  of  events  was 
therefore  in  strict  accordance  with  the  law  of  supply  and 
demand  instead  of  being  contrary  to  it. 

RESULT    OF    DELIVERY    COMING    SO    LONG   AFTER    DEMAND 

When  delivery  and  demand  come  together,  manufac- 
turers and  dealers  may  know  at  once  should  the  demand 
exceed  the  supply;  but  in  construction  materials  in  which 
the  delivery  is  made  months  or  perhaps  one  or  more  years 
after  the  contracts  are  closed,  the  amount  of  materials 
contracted  for  may  greatly  exceed  the  possible  supply. 
The  manufacturers  and  builders  may  have  no  knowledge  of 
this  fact  until  many  months  after  the  contracts  are  made. 

It  is  in  consequence  of  these  things  that  the  construc- 
tion builders  and  the  producers  of  iron,  steel,  lumber, 
cement,  brick,  stone,  etc.,  in  boom  times,  sometimes  have 
their  order  books  filled  up  with  50  to  100  per  cent,  more 
work  than  they  are  ultimately  able  to  get  out  on  contract 
time.  None  of  the  parties  realize  the  difficulty  they  are 


116    INDUSTRIAL    DEPRESSIONS 

getting  themselves  into  at  the  time  this  excessive  contract- 
ing is  done.  In  dull  times,  the  few  who  are  fortunate 
enough  to  be  able  to  contract  for  50  to  100  per  cent,  more 
constructive  work  than  usual  have  no  difficulty  in  pro- 
curing, on  time,  50  to  100  per  cent,  more  labor  and  ma- 
terials than  usual,  and  thus  they  are  able  in  dull  times 
to  complete  their  contracts  with  ordinary  promptness ;  but 
when  a  great  number  of  builders  and  material  producers 
secure  50  to  100  per  cent,  more  contracts  than  usual, 
and  all  try  to  secure  50  to  100  per  cent,  more  labor  and  ma- 
terials than  usual,  there  comes  an  unpleasant  awakening. 

If  construction  contracts  involved  immediate  delivery 
of  the  materials  involved,  the  parties  interested  would 
know  when  the  capacity  of  the  country  to  produce  these 
materials  was  reached,  and  this  blind  involvement  of  the 
building  contractors  and  material  producers  of  the  country 
would  be  avoided. 

But  these  parties  have  no  means  of  knowing  that  con- 
struction contracts  are  being  made  in  excess  of  the  capa- 
city of  the  country  to  execute  on  contract  time,  until  the 
period  arrives  when  they  need  the  unusual  amount  of 
labor  and  materials.  Up  to  this  time  of  gradual  awaken- 
ing, each  calculates  upon  his  being  able  to  get  the  50  to 
100  per  cent,  more  materials  needed.  Had  they  not  con- 
tracts for  them?  And,  as  for  the  extra  labor,  had  it  not 
always  been  more  than  easy  to  secure  all  they  needed? 
This  unpleasant  awakening  is  not  confined  to  the  contract- 
ing builders  and  manufacturers  of  material ;  it  is  extended 
all  along  the  line ;  to  the  raw  material  producers,  the  quarry- 
men,  the  brickmakers,  the  miners,  and  to  every  one  who 
employed  labor  in  the  production  of  construction  materials. 

Now,  the  history  of  the  industries  all  through  this  re- 
markable twelve-year  period  between  1896  to  1907  was  a 
simple  illustration  of  the  perfect  and  inexorable  working 
of  the  law  of  supply  and  demand.  As  long  as  the  known 
supply  exceeded  the  known  demand,  prices  kept  down. 
When  the  known  demand  exceeded  the  known  supply, 
prices  advanced.  During  some  periods  the  known  demand 


ANALYSIS    OF    CONSTRUCTION     117 

for  quick  delivery  exceeded  the  possible  supply,  and  at  the 
same  time  the  known  demand  for  future  delivery  was  far 
below  the  possible  supply.  In  such  periods  quick  delivery 
prices  were  at  a  premium,  and  future  delivery  prices  were 
at  a  discount,  thus  accentuating  the  truth  of  the  perfect 
and  inexorable  working  of  the  law  of  supply  and  demand. 
This  explains  why,  near  the  end  of  a  boom,  prices  drop, 
while  the  demand  appears  to  be  greater  than  ever.  The 
facts  are  that  contracts  for  construction  which  involve 
only  future-delivery  demand,  have  almost  ceased,  while 
the  pressure  to  complete  old,  low-priced  contracts  has 
carried  the  prices  of  materials  which  can  be  delivered 
immediately  to  abnormally  high  figures. 

ILLUSTRATION 

Perhaps  no  better  illustration  can  be  given  of  this  last 
named  condition  than  the  situation  which  developed 
when  the  United  States  Steel  Corporation,  with  the 
commendable  purpose  of  checking  the  rapid  advance  in 
prices  of  iron  and  steel,  gave  public  notice  that  it  would 
not  again  advance  prices,  and  that  all  responsible  con- 
sumers might  rely  upon  its  booking  and  filling  all  orders, 
in  turn,  at  the  then  existing  figures.  The  Steel  Corpora- 
tion lived  up  manfully  to  its  voluntary  proposition.  (We 
think  this  was  about  June,  1901,  at  which  time  the  seven 
important  shapes  of  iron  and  steel,  used  as  typical  of 
prices  in  the  annual  tables  of  "The  Cleveland  Iron 
Trade  Review"  averaged  about  65  per  cent,  above 
the  lowest  prices  of  1897.)  The  announcement  appar- 
ently had  a  marked  effect  upon  the  market  for  sev- 
eral months;  but  price  depends  upon  the  supply,  when 
the  consumer  needs  it.  As  the  Steel  Corporation  could 
not  produce  all  that  was  wanted,  and  could  only  deliver 
as  much  as  it  was  able  to  produce,  and  as  the  immediate 
necessities  of  some  of  the  consumers  were  such  that  they 
could  not  wait,  prices  soon  commenced  to  advance  rapidly, 
and  by  June,  1902,  the  independent  mills,  and  new  mills 
which  had  started  up,  were  selling  all  they  were  able  to 


118    INDUSTRIAL    DEPRESSIONS 

furnish,  at  prices  124  per  cent,  above  the  prices  of  1897. 
Here  was  a  broad  illustration  of  a  difference  of  47  per  cent, 
between  quick  delivery  and  future  delivery  prices.  The 
United  States  Steel  Corporation  in  its  statement  of  July 
1st,  1902,  gave  its  unfilled  orders  at  4,741,993  tons.  This 
47  per  cent,  was  the  premium  which  consumers  paid  to 
get  materials  promptly,  over  and  above  what  they  might 
have  purchased  these  materials  for,  if  they  had  elected 
to  wait  until  they  could  get  them,  in  their  turn,  from  the 
United  States  Steel  Corporation. 

THE   SMALL  BENEFIT   OF  BOOM   PRICES  REALIZED  BY 
MANUFACTURERS 

By  reference  to  Appendix  L,  it  will  be  observed  that 
the  demand  for  construction  commenced  to  fall  off  soon 
after  prices  made  any  considerable  advance,  and  that  it 
continued  to  fall  off  hi  almost  exact  mathematical  pro- 
portions with  the  advance  in  prices.  This  explains  very 
clearly  some  of  the  phenomena  attending  a  boom  which 
without  the  knowledge  of  these  facts  would  seem  very 
unaccountable. 

First  among  these  is  the  fact  that  the  manufacturers 
of  construction  materials  in  this  country  realize  such  a 
very  small  benefit  from  the  large  advance  in  prices  which 
takes  place  during  a  boom.  The  fact  is  that  the  great 
bulk  of  the  construction  which  takes  place  in  all  booms 
is  the  construction  which  is  contracted  for  before  any 
considerable  advance  in  prices  takes  place;  consequently, 
the  producers  of  construction  materials,  as  a  rule,  have 
booked  contracts  for  the  larger  part  of  everything  they 
are  able  to  turn  out  during  the  continuance  of  a  boom, 
long  before  there  is  any  considerable  advance  in  prices. 
Of  course,  there  are  exceptions  to  this  rule.  We  have 
known  of  iron-furnaces  and  steel-works  which  were  not 
in  operation  when  the  boom  commenced,  and  in  conse- 
quence made  no  contracts  during  the  low-priced  period, 
but  after  prices  had  advanced  largely  these  plants  were 
put  into  operation,  consequently  made  all  their  contracts 


ANALYSIS    OF    CONSTRUCTION    119 

at  the  high  prices,  and  were  thus  enabled  to  reap  large 
profits.  On  the  other  hand,  we  have  known  of  other 
concerns  that  contracted  all  they  could  make  for  more 
than  a  year  ahead  at  the  low  prices,  and,  before  they  were 
able  to  fill  these  orders,  the  advance  in  labor  and  raw 
materials  so  enhanced  the  cost  of  manufacture  that  the 
boom  brought  them  out  with  a  loss.  For  this  reason,  the 
profits  of  the  producers  of  construction  materials  during 
a  boom  are,  as  a  rule,  very  disappointing.  We  might 
give  many  illustrations  if  it  would  not  be  a  virtual  betrayal 
of  what  should  be  considered  confidential,  but  this  fact 
is  well  known  among  those  who  are  directly  interested  in 
the  production  of  materials  used  in  construction. 

We  will,  however,  give  one  illustration,  first,  because  it 
is  public  property,  having  been  published  in  "The  Iron 
Age  "of  February  27th,  1908,  and,  second,  because  it  covers 
the  entire  period  from  1899  to  1907,  inclusive.  It  is  taken 
from  the  annual  report  of  the  President  of  the  Empire 
Steel  &  Iron  Company,  of  Catasauqua,  Pa.,  to  his  stock- 
holders. This  company  is  a  large,  prosperous,  and 
well-managed  company,  having  eight  blast  furnaces  in 
Pennsylvania  and  New  Jersey.  We  quote  from  the  report 
as  follows:  "We  submit  for  comparison  the  following 
statement  of  the  result  of  business  year  by  year  since  this 
company  was  incorporated,  the  first  year  covering  a 
period  of  nine  months : 


Year. 

Tons  pig  iron 
made. 

Tons  ore  mined 
New  Jersey  mines. 

Net  Earnings. 

Dividends. 

1899 

150,481 

8,416 

$320,666.30 

$81,595.31 

1900 

201,847 

40,637 

244,523.85 

106,395.00 

1901 

185,990 

83,414 

85,271.52 

71,043.00 

1902 

186,485 

59,179 

203,087.37 

75,000.00 

1903 

245,513* 

107,905 

308,651.02 

75,000.00 

1904 

163,202 

111,375 

88,154.16 

75,000.00 

1905 

172,763 

93,568 

91,511.96 

75,000.00 

1906 

205,477 

131,740 

300,695.07 

112,500.00 

1907 

234,538 

146,253 

517,256.15 

150,000.00 

Totals 

1,746,296 

782,487 

$2,159,817.40 

$821,533.31 

*  Two  additional  furnaces  operated  under  lease. 


120    INDUSTRIAL    DEPRESSIONS 

"From  this  it  will  be  seen  that  in  all  important  respects 
the  results  during  the  past  year  have  surpassed  all  previous 
records,  and  it  might  be  interesting  to  note  that  our  profits 
from  all  sources  have  amounted  to  $2.20  per  ton  of  iron 
produced." 

As  will  be  observed  from  the  above  quotations,  the 
average  profit  for  the  nine  years  was  but  about  SI. 23  per 
ton  on  their  entire  output  of  1,746,296  tons  of  pig  iron. 
This,  it  must  be  borne  in  mind,  was  during  a  period  hi 
which  there  were  three  great  advances  in  prices,  viz.,  from 
$11.25  per  ton  for  No.  1  Foundry  in  Philadelphia  in  July, 
1898,  to  $25.00  per  ton  in  November;  from  $15.50  in 
October,  1901,  to  $24.87  in  November,  1902,  and  from 
$15.00  in  September,  1904,  to  $27.00  per  ton  in  December, 
1906.  Here  we  have,  on  the  three  advances  named 
within  the  nine  years,  an  average  advance  of  $12.70  per 
ton,  while  the  best  year's  profit  was  $2.20  per  ton,  and  the 
average  profit  for  the  whole  nine  years  less  than  $1.24 
per  ton;  although  this  concern,  not  being  in  existence  in 
1896,  1897,  and  1898,  escaped  filling  up  their  order  books 
with  low-priced  contracts  in  these  early  years. 

This  is  not  an  exceptional  case.  If  the  balance  sheets 
of  all  the  furnace  companies  in  the  country  could  be  con- 
solidated for  this  period  of  twelve  years,  or  any  other  boom 
period,  they  would  in  all  probability  not  show  any  better 
average  result.  We  think  this  case  may  be  taken  as  a 
fair  indication  of  the  average  proportion  of  boom-price 
advances  actually  realized  by  the  whole  body  of  producers 
of  construction  materials  during  any  of  the  booms  of  the 
last  century.  Of  course  many  individual  cases  can  be 
cited  where  much  larger  proportions  of  the  advance  have 
been  realized;  but  that  does  not  change  the  facts. 

Now  if  this  illustration  (which  shows  a  net  profit  of 
about  $1.24  per  ton  during  the  nine  years  in  which  the 
average  of  the  three  great  advances  in  price  was  $12.70  per 
ton)  is  a  fair  average  of  the  proportion  of  boom  advances 
realized  by  the  producers  of  construction  material  in  the 
United  States  during  a  boom,  then  it  is  perfectly  clear 


ANALYSIS    OF    CONSTRUCTION    121 

that  the  great  majority  of  all  the  constructive  work  of  the 
country,  executed  during  a  boom,  must  be  contracted  for 
before  the  advance  has  reached  one  tenth  of  its  maximum. 
In  other  words,  there  must  have  been  enough  contracted, 
under  10  per  cent,  advance,  to  offset  all  taken  above  10  per 
cent.,  because  the  average  advance  obtained  was  less  than  10 
per  cent. 

In  the  writer's  experience  of  forty  years  hi  the  iron 
business,  he  has  never  known  a  boom  period  in  which  the 
furnace  companies  of  the  country,  as  a  rule,  had  not  con- 
tracted their  anticipated  product  for  six,  nine,  or  twelve 
months  in  advance  before  the  abnormal  advance  in 
prices  occurred.  For  additional  evidence  see  Appendix  Q, 
and  note  that  the  United  States  Steel  Corporation,  dur- 
ing the  low-priced  period  from  September  30th,  1904,  to 
December  31st,  1905,  increased  their  unfilled  orders  from 
3,027,436  tons  to  7,605,086  tons,  while  after  the  great 
advance  in  prices  which  followed,  the  increase  was  small 
in  comparison. 

Analyze  this  matter  from  any  standpoint  you  choose 
and  the  result  always  points  in  one  direction,  namely, 
that  the  contracts  for  the  extra  constructive  work  which 
make  up  what  we  call  a  boom  are  almost  entirely  at  or 
near  the  low  prices  current  during  the  one,  two,  or  three 
years  just  before  the  boom  manifests  itself,  and  if  this  is 
true,  then  an  industrial  boom  is  chiefly  the  execution  of 
the  abnormally  large  amount  of  construction  contracted 
for  in  the  low-priced  periods  which  precede  a  boom. 

PREMIUMS  PAID  FOR  IMMEDIATE-DELIVERY  MATERIALS, 
WHILE  DISCOUNTS  ARE  OFFERED  ON  FUTURE-DELIVERY 
MATERIALS 

Another  peculiar  feature  which  develops  in  prices  of  con- 
struction materials  towards  the  latter  part  of  a  boom  is 
that  large  reductions  in  prices  are  offered  on  materials  for 
future  delivery,  with  few  sales;  while  there  is  at  the  same 
time  a  famine  in  materials  for  immediate  delivery,  and 
everything  which  can  be  so  delivered  commands  quick  sale 


122    INDUSTRIAL    DEPRESSIONS 

at  large  premiums.  This  is  because  the  volume  of  future- 
delivery  orders  on  the  books  of  manufacturers,  which  at 
the  commencement  of  a  boom  probably  amount  to  an 
average  of  nine  to  twelve  months'  product,  have  gradually 
dwindled  down  to  probably  four  or  five  months'  product, 
and  this  condition  has  commenced  to  alarm  individual 
manufacturers;  and  well  they  may  be  alarmed,  for  a 
large  part  of  construction  materials,  such  as  steel,  stone, 
etc.,  must  be  made  to  fit  exactly  the  places  they  are  to 
fill  in  the  structures  of  which  they  are  to  become  a  part, 
and  for  such  work  four  or  five  months  may  be  a  short 
time  in  which  to  complete  all  the  detail  connected  with 
their  preparation.  Now,  although  individual  manufac- 
turers always  know  when  this  is  their  own  condition,  they 
have  no  means  of  knowing  the  fact  that  it  is  also  the  condi- 
tion of  other  manufacturers  all  over  the  country.  The 
premium  paid  for  materials  which  can  be  delivered  im- 
mediately is  usually  for  small  lots,  the  lack  of  which  is 
holding  back  the  completion  of  large  contracts,  which 
have  already  been  delayed  long  beyond  the  time  specified 
in  contracts,  and  which  were  made  many  months  or  per- 
haps a  year  or  more  before.  There  is  no  time  when 
the  demand  for  labor  and  materials  for  prompt  delivery 
is  so  intense  as  just  before  the  general  slump  in  actual 
construction  which  ushers  in  a  depression. 

CAUSE    OF    THE    ABNORMAL    ADVANCE    IN    PRICES 

When  prices  get  so  low  that  the  desire  for  gain  stimu- 
lates investment  construction  to  such  an  extent  that  it, 
and  necessity  construction  combined,  ultimately  carry 
prices  to  abnormally  high  figures,  it  is  because  the  amount 
of  construction  to  be  executed  and  construction  materials 
contracted  to  be  delivered  within  a  given  time  is  in  excess  of 
the  country1  s  capacity  to  supply  within  that  time. 

The  whole  volume  of  construction  contracted  for  in 
the  fifteen  years  from  1896  to  1910,  and  the  years  and 
months  when  these  contracts  were  closed,  is  supposed  to  be 
represented  on  diagram,  Appendix  L,  by  the  whole  space 


ANALYSIS   OF   CONSTRUCTION    123 

included  within  the  base  line  BB,  the  line  DD,  and  the 
side  lines  K  and  Z. 

The  years  and  months  when  the  above  volume  of  con- 
struction was  executed,  are  supposed  to  be  represented 
by  the  whole  space  included  within  the  base  line  BB,  the 
line  FF,  and  the  side  lines  K  and  Z. 

In  each  case,  both  the  necessity  construction  and  invest- 
ment construction  are  included. 

The  percentage  of  construction  which  was  contracted 
for  during  the  three  low  priced  periods,  in  excess  of  the 
capacity  of  the  country  to  execute  on  contract  time,  is  sup- 
posed to  be  represented  by  the  three  spaces  marked  G,  G, 
G  (between  the  lines  D  and  A). 

The  time  when  these  excesses  over  current  capacity 
were  actually  executed,  is  supposed  to  be  represented 
by  the  three  spaces  marked  H  (between  the  lines  F 
and  D). 

As  will  be  observed,  the  volume  of  excessive  con- 
struction represented  by  the  three  spaces  G,  G,  G,  is 
absurdly  small,  when  compared  with  the  whole  volume 
of  construction  of  the  fifteen  years,  represented  by 
the  space  between  the  lines  D,  B,  K,  and  Z,  and  yet  it  is 
this  small  excess  of  construction,  over  and  above  the 
capacity  of  the  country  to  supply  the  labor  and  mate- 
rials to  execute  within  contract  time,  which  carries  the 
prices  of  labor  and  materials  to  such  abnormally  high 
figures. 

Is  it  not  perfectly  obvious  that,  if  the  labor  and  materials 
had  been  known  to  be  sufficient  to  meet  the  demand  for 
them  all  through  the  fifteen  years,  the  abnormally  high 
prices  for  such  important  staples  as  iron,  lumber,  etc., 
would  not  have  occurred? 

Whether  the  three  spaces  marked  G,  G,  G,  are  too  large 
to  correspond  to  actual  conditions,  or  too  small,  in  no 
way  affects  the  argument.  We  know  full  well  that  it  is 
the  excess  of  demand  over  supply  which  carries  prices  up, 
and,  as  the  prices  did  go  up,  the  excess  of  demand  must 
have  existed,  and  had  it  not  existed  to  a  very  pronounced 


124    INDUSTRIAL    DEPRESSIONS 

degree,  there  would  have  been  no  such  pronounced  ad- 
vance in  all  the  materials  of  construction  in  the  five  great 
industrial  nations. 

REMARKS 

Adam  Smith  told  the  world  more  than  a  hundred  years 
ago,  in  that  magnificent  work,  entitled  "The  Wealth  of 
Nations, "  that  low  prices  stimulated  consumption,  and 
that  high  prices  retarded  consumption,  and  the  world  has 
believed  it,  theoretically,  ever  since;  but  the  people  have 
not  believed  it  practically,  except  to  the  extent  they  have 
seen  and  realized  its  verification,  and  that  has  been  con- 
fined to  such  things  as  were  sold  for  immediate  delivery. 
In  these  the  advance  in  prices,  and  the  falling  off  in  demand 
and  in  delivery,  were  seen  and  recognized,  because  they  all 
came  at  the  same  time.  Now,  in  construction,  it  is  very 
different.  In  all  the  industrial  booms  which  have  taken 
place,  the  people  have  seen  the  volume  of  actual  construc- 
tion and  delivery  of  materials  not  only  increase  as  prices 
advanced,  but  have  seen  it  keep  on  increasing  for  many 
months,  even  after  prices  had  advanced  from  50  to  100 
per  cent.,  and  so  they  have  believed  that  high  prices  did 
not  retard  construction.  The  people  have  simply  taken 
appearances  for  facts,  and  have  failed  to  realize  that  high 
prices  have  their  retarding  effect  on  each  thing  at  the 
time  the  high  price  is  fixed  on  that  thing,  whether  it  is 
fixed  by  a  verbal  purchase  of  an  article  for  immediate 
delivery,  or  by  a  written  contract  of  purchase  for  an 
article  for  future  delivery;  and  so  they  have  not  believed 
that  high  prices  retarded  the  consumption  of  iron,  lumber, 
brick,  stone,  cement,  and  all  the  other  great  staples  which 
are  consumed  in  the  construction  of  buildings,  railroads, 
ships,  and  the  other  great  construction  projects  which 
make  up  the  bulk  of  all  the  manufacturing  and  mechanical 
industries  of  a  nation.  But  what  are  the  industries  of  a 
nation?  What  is  this  powerful  force  which  raised  the 
manufactured  products  of  the  United  States  to  the  value 
of  thirteen  thousand  millions  of  dollars  in  1900? 


ANALYSIS    OF    CONSTRUCTION 

WHAT    ARE    THE    INDUSTRIES    OF    A    NATION? 

There  seems  to  be  an  undefined  impression  that  the 
industries  of  a  nation  are  the  result  of  some  gigantic  force 
that  nothing  but  a  great  external  calamity,  such  as  war, 
pestilence,  or  a  financial  panic  can  check,  and  so,  when 
depressions  come  without  a  recognized  cause,  the  public 
looks  for  some  great  or  mysterious  thing  to  account  for 
them.  A  careful  analysis  shows  that  the  industries  of  a 
nation  are  nothing  more  than  an  aggregation  of  the  acts 
of  individuals.  An  individual's  act  may  be  of  as  little 
importance  to  the  whole  industries  of  a  nation  as  a  drop 
of  water  to  the  ocean,  but  the  ocean  is  made  up  of  nothing 
but  drops  of  water.  When  an  individual  acting  for  him- 
self, or  for  the  business  which  he  directs,  contemplates  an 
expenditure  for  a  permanent  improvement,  he  first  secures 
plans  and  specifications,  and  on  these  asks  for  bids  on  the 
work.  When  the  bids  are  received,  and  he  has  deter- 
mined upon  what  he  considers  for  his  best  interest,  or  the 
best  interest  of  the  company  he  directs,  he  acts,  and  if 
that  action  is  the  acceptance  of  one  of  the  bids,  then  the 
ocean  of  industrial  prosperity  has  received  one  more  drop 
to  swell  its  volume.  If  that  action  is  to  curtail  or  abandon 
some  existing  business,  then  the  ocean  of  industrial 
depression  has  received  one  more  drop  to  add  to  its  gloom. 

This  individual  act  may  not  be  known  outside  of  a  few 
people,  and  may  attract  no  more  notice  at  the  time  than 
the  drop  of  water  which  falls  into  the  ocean,  but  it  is  the 
aggregation  of  just  such  acts  that  makes  up  the  mighty 
force  which  turns  the  tide  of  prosperity.  No  one  seems 
to  realize  at  the  time  that  tens  of  thousands,  aye,  hundreds 
of  thousands,  of  others,  all  over  the  land,  are  acting  hi  the 
same  manner  and  from  the  same  motive. 

WHERE    THE    RESPONSIBILITY    RESTS 

Let  there  be  no  mistake  as  to  exactly  where  the  real 
responsibility  for  the  postponement  or  abandonment  of 
these  construction  enterprises  rests.  It  is  not  with  the 
manufacturer:  it  matters  not  to  him  whether  he  pays 


126    INDUSTRIAL    DEPRESSIONS 

high  prices  for  labor  and  materials,  or  low  prices.  As  long 
as  he  can  continue  to  sell  his  products  at  a  satisfactory 
profit,  he  will  push  his  output  to  the  limit  of  his  factory. 
It  is  not  with  the  architect,  designer,  laborer,  or  mechanic : 
they  work,  not  because  they  love  labor  necessarily,  but  in 
order  that  they  may  earn,  and  thus  be  able  to  buy.  It  is 
not  with  the  constructor  or  contractor:  they  are  stimu- 
lated by  the  profits  which  they  hope  to  realize.  All  these 
individuals,  as  a  rule,  are  as  anxious  to  do  their  part  in 
construction  at  high  prices  as  they  are  to  do  it  at  low  prices. 
The  actual  responsibility  for  each  of  the  checks  to  the  indus- 
tries, which  come  from  high  prices,  rests  solely  with  the 
individual  who  "holds  the  purse-strings^ —  the  individual 
who  is  to  pay  for  and  own  the  contemplated  improvement. 
He  it  is  who  decides  to  go  ahead  when  prices  are  low,  and  he 
thinks  they  will  go  higher;  he  it  is  who  holds  on  to  his  money, 
and  decides  to  postpone  or  abandon  the  contemplated  im- 
provement when  prices  are  high  and  he  thinks  they  will  go 
lower. 

This  individual,  when  he  makes  his  decision,  is  not 
impelled  by  "an  organic  defect  of  human  nature,"  nor 
by  "celestial  influences,"  nor  by  "mental  waves,"  nor 
by  "sun  spots."  He  is  governed  solely  by  plain,  simple, 
unadorned  business  considerations,  and  on  these  he  acts. 
Probably  not  one  individual  in  the  land,  as  he  makes  his 
decisions  to  postpone  his  expected  construction,  realizes 
that  the  motive  which  impels  his  decision  is  rife  in  the 
whole  land,  and  that  his  decision  is  but  one  of  the  hundreds 
of  thousands  of  similar  acts,  the  aggregation  of  which 
will,  within  a  few  months,  culminate  in  an  industrial 
depression. 

In  searching  for  the  cause  of  these  mysterious  industrial 
depressions,  therefore,  it  is  only  necessary  to  discover  the 
motive  and  conditions  which  control  the  acts  of  one  class 
of  individuals  —  "the  purse-string  holders."  When  this 
is  determined,  we  shall  have,  in  a  nutshell,  the  solution 
of  the  cause  of  both  booms  and  depressions. 


CHAPTER  XII 

THE    MOTIVE    WHICH    UNDERLIES    THE     INDUSTRIES,     AND 
THE    REAL    CAUSE    OF    INDUSTRIAL    DEPRESSIONS 

IF  the  motive  which  gives  origin  to  any  system  can  be 
identified,  it  will  most  likely  be  found  to  embody  the 
cause  of  the  prominent  features  which  attend  that  system. 
Now,  what  is  the  motive  which  gives  origin  to  the  indus- 
tries? What  is  the  stimulus  which  is  responsible  for  the 
great  constructive  enterprises  which  are  the  chief  indus- 
tries of  the  five  nations  which  have  suffered  most  severely 
from  industrial  depressions?  Analyze  this  question  from 
whatever  point  one  may,  and  in  each  case  one  is  led 
to  the  same  conclusion,  namely,  that  the  predominating 
motive  which  stimulates  man's  acts  in  originating,  oper- 
ating, and  enlarging  the  constructive  enterprises  is  the 
instinctive  desire  for  gain. 

It  is  this  motive  which  prompts  the  erection  of  the 
great  blocks  of  residences  and  the  apartment  and  tenement 
houses  in  the  large  cities;  the  stores,  factories,  furnaces, 
and  mills  in  the  cities,  towns,  and  villages;  the  railroads, 
pipe-lines,  telegraph-lines,  ships,  and  submarine  cables 
wherever  they  are  constructed.  There  are  some  other 
motives  which  contribute  to  these  industrial  productions, 
it  is  true.  Charity,  public  spirit,  love  of  home  or  some- 
thing of  like  nature,  are  usually  the  motives  which  prompt 
the  erection  of  churches,  libraries,  hospitals,  and  a  portion 
of  the  private  residences,  but  these  exceptions  are  only  a 
minor  portion  of  the  products  of  construction;  moreover, 
official  statistics  show  that  of  the  16,187,715  families  in 
the  United  States  in  1900,  but  7,259,362  had  houses  owned 
by  them.  Then  again,  a  large  percentage  of  the  residences 
in  cities,  which  are  occupied  by  their  owners,  were  orig- 

127 


128    INDUSTRIAL    DEPRESSIONS 

inally  planned  and  built  in  large  blocks  and  in  great 
numbers  by  capitalists  or  professional  builders  for  the 
purpose  of  renting,  or  selling  them  at  a  profit;  but  even 
hi  the  cases  of  the  houses  built  by  their  owners,  and  of 
the  churches,  hospitals,  etc.,  it  is  the  instinctive  desire 
for  gain  which  stimulates  the  production  of  the  iron, 
lumber,  brick,  stone,  cement,  etc.,  which  enter  into  their 
construction.  It  is  this  motive,  also,  which  prompts  the 
manufacture  of  all  the  various  furnishings,  fixtures,  conven- 
iences, and  luxuries  purchased  to  equip  stock  and  operate 
these  things.  In  fact,  a  thorough  analysis  shows  that 
this  motive  is  present  and  in  active  operation  throughout 
the  entire  chain  of  events  attending  the  great  increase  in 
the  volume  of  industries  which  constitutes  a  boom,  and, 
being  a  natural  and  unceasing  motive,  it  must  be  just  as 
certainly  present  and  equally  active  and  in  full  operation 
throughout  the  entire  chain  of  events  which  decrease  the 
volume  of  the  industries  and  thus  bring  on  an  industrial 
depression.  Furthermore,  there  is  nothing  mysterious 
or  hidden  in  its  action;  on  the  contrary,  it  manifests  its 
presence  in  a  perfectly  simple  and  open  manner. 

For  instance,  in  the  low-priced  period,  the  far-seeing 
investors  of  the  country,  as  soon  as  they  become  satisfied 
that  prices  are  at  as  low  a  level  as  they  will  reach,  and 
that  an  advance  in  prices  is  imminent  (each  wishing  to 
acquire  as  large  an  amount  of  revenue-yielding  wealth 
as  possible  with  the  money  he  has  to  command),  hasten 
to  contract  for  a  large  amount  of  revenue-yielding  con- 
struction. This  is  a  great  and  important  movement;  it 
grows  with  cumulative  force,  and  is  checked  only  by  some 
equally  powerful  force. 

On  the  other  hand,  in  the  high-priced  period,  the  far- 
seeing  investors,  as  soon  as  they  become  satisfied  that 
prices  of  construction  have  advanced  to  a  plane  which 
makes  such  investments  less  desirable  than  some  other 
investment  might  be  (each  wishing  to  acquire  as  large 
an  amount  of  revenue-yielding  wealth  as  possible  with 
the  money  he  has  to  command),  decide  to  stop  making 


THE    MOTIVE    OP    BUSINESS 

contracts  for  construction,  and  to  invest  their  money  in 
other  ways,  until  prices  shall  drop  back  to  low  figures 
again. 

As  the  industries  of  a  nation  are  nothing  more  than  an 
aggregation  of  the  acts  of  individuals  (page  125),  and  as 
individual  acts  are  controlled  by  the  instinctive  desire  for 
gain,  it  follows  that  the  entire  business  of  the  nation  is 
controlled  by  this  ever-present  motive. 

THE   REAL   CAUSE 

The  instinctive  desire  to  get  all  one  can  for  the  money 
one  has  to  invest  is  no  more  active  in  the  crowd  which 
surrounds  the  bargain-counter  in  a  retail  store  than  it  is 
hi  the  mind  of  the  multimillionaire,  who  sits  at  his  desk 
and  quietly  decides  whether  to  accept  or  reject  bids  which 
involve  millions  in  expenditures  for  construction.  Either 
the  motive,  which  is  so  strong  and  effective  in  little  things, 
becomes  less  strong  and  less  effective  in  big  things,  or 
else  this  motive  is  the  germ  which  stimulates  the  great 
increases  in  construction,  generated  when  prices  are  low, 
and  the  great  decreases  in  construction,  generated  when 
prices  are  high.  What  Adam  Smith  told  the  world  more 
than  a  hundred  years  ago  about  the  effects  of  high  and 
low  prices  upon  the  volume  of  consumption  is  as  true  of 
great  enterprises  as  it  is  of  small  things;  and  it  is  even 
more  pronounced  in  investment  construction  than  it  is 
in  the  necessities  of  life. 

Prosperity  does  not  depend  upon  the  producer's  ability 
to  manufacture  and  his  desire  to  sell,  but  upon  his  ability 
and  willingness  to  sell  at  a  price  that  will  induce  the 
purse-string  holders  to  purchase. 

The  whole  experience  of  the  past  shows  that  as  long  as 
prices  are  low,  and  the  people  who  have  money  believe 
they  are  gaining  by  purchasing,  they  will  continue  to 
purchase,  and  prosperity  will  continue;  but  just  to  the 
extent  that  prices  go  so  high  that  people  believe  they 
will  lose  by  buying,  just  to  that  extent  they  will  stop 
buying. 


130    INDUSTRIAL    DEPRESSIONS 

//  these  things  are  true,  then  High  Price  of  Construction 
is  the  real,  original,  and  underlying  cause  of  the  mysterious 
industrial  depressions  which  have  occurred  in  the  industrial 
nations  when  these  depressions  have  come  in  the  absence  of 
external  and  recognized  causes. 

It  is  recognized  that  there  are  thousands  of  more  or 
less  influential  contributory  causes  of  both  depression 
and  prosperity  at  work  at  all  times,  and  that  all  these 
things  must  have  then*  due  effect.  If  anything  adds  but 
the  smallest  particle  to  the  volume  of  business,  it  is  a  drop 
added  to  the  ocean  of  prosperity,  or  if  anything  reduces 
the  volume  of  business  by  the  least  amount,  it  is  a  drop 
added  to  the  ocean  of  depression,  and  if  either  one  of 
these  contending  forces  predominate,  it  will  move  the 
industries  more  or  less  in  that  direction.  But  no  flood  of 
drops  has  ever  swelled  into  a  boom  except  when  prices 
were  low  enough  to  stimulate  the  making  of  contracts  for 
a  large  amount  of  new  construction;  that  is  the  founda- 
tion and  stimulant  on  which  every  boom  develops. 

Low  prices,  however,  are  not  everything,  and  may  not 
at  once  bring  a  boom.  The  industries  are  an  aggregation 
of  individual  business  acts,  performed  by  men  who  have 
in  view  the  problem  of  adding  to  their  wealth.  They 
move  cautiously  as  long  as  the  future  looks  uncertain, 
but  when  the  business  outlook  is  clear,  and  they  see  pros- 
pects of  making  construction  investments  which  promise 
steady  profits  as  well  as  security  to  their  capital,  they  act 
promptly  and  with  vigor.*  Then,  too,  a  boom  with  its 
abnormal  demand  stimulates  many  to  enlarge  their  facil- 
ities and  producing  capacity,  even  at  high  cost,  believing 
that  high  prices  have  come  to  stay,  and  that  the  capital 
they  thus  invested  will  be  secure  and  their  profits  large. 
Some  of  these  venturesome  ones,  through  some  fortunate 
circumstance,  may  be  justified  by  the  results,  but  that  a 

*  In  Chapter  XIV  will  be  found  a  remarkable  illustration  of  how  an  in- 
dustrial boorn  was  repeatedly  delayed  by  financial  derangements,  and 
how  promptly  and  vigorously  the  far-seeing  investors  repeatedly  took 
hold  again,  as  soon  as  financial  derangement  was  removed  or  alleviated. 


THEREALCAUSE  131 

great  number  of  them  are  not,  we  may  know  by  the  large 
number  that  meet  disaster  when  the  depressed  period 
comes.  Perhaps  these  disasters  account  for  the  oft-heard 
remark,  that  "  fools  build  houses  and  wise  men  live  in 
them."  Perhaps  the  wise  ones  are  those  who  hold  on  to 
their  money  when  prices  of  construction  are  abnormally 
high,  and  buy  these  unwisely  built  structures  when  they 
are  sold  from  necessity. 

There  are  many  ways,  besides  those  named,  in  which 
contributory  causes  may  delay  or  hasten  a  boom  or  a 
depression,  but  sooner  or  later  the  effect  of  high  or  low 
prices  brings  its  logical  result.  All  these  conditions  and 
results  only  show  more  conclusively  how  entirely  these 
business  revolutions  are  finally  swayed  by  this  one  silent 
but  powerful  business  force  —  the  desire  for  gain. 

In  the  hundreds  of  cases  we  have  investigated,  we  have 
found  the  motive  just  as  ever-present  and  active  when 
bids  for  great  enterprises  were  rejected,  as  it  was  when 
they  were  accepted.  We  have  in  mind  two  illustrations. 
The  first  is  of  two  gentlemen  who,  during  a  period  of  low 
prices,  had  each  contracted  for  the  erection  of  two  or  three 
hundred  residences.  When  most  of  the  residences  were 
completed  by  one  party,  and  the  majority  of  them  sold 
or  rented  at  profitable  prices,  new  bids  were  asked,  on 
old  plans  and  specifications,  for  a  block  of  twenty  addi- 
tional houses,  and,  when  received,  he  found  them  to  be 
nearly  100  per  cent,  above  the  bids  made  in  the  low- 
priced  period.  Sometime  afterwards,  in  giving  his  reason 
for  not  going  on  with  this  building  operation,  he  remarked 
that  he  stopped  because  he  thought  it  would  be  better 
business  to  loan  his  surplus  money  on  other  people's  real 
estate  until  prices  fell  back  to  old  figures,  as  he  could 
then  build  forty  residences  for  the  same  amount  of  money 
that  was  now  asked  for  twenty.  The  reason  given  by 
the  other  gentleman  for  stopping  construction  was  equally 
sound,  if  not  so  forcible.  It  was  that  it  would  be  as  hard 
to  get  3  per  cent,  revenue  out  of  double-cost  houses 
as  it  was  to  get  6  per  cent,  out  of  low-cost  houses,  and 


132    INDUSTRIAL    DEPRESSIONS 

he  did  not  "hanker  after  3  per  cent,  real  estate  invest- 
ments. " 

The  building  of  these  hundreds  of  residences  involved 
the  purchase  of  furniture,  carpets,  curtains,  ornaments, 
etc.,  to  equip  them.  The  construction  and  equipment 
were  so  many  drops  in  the  ocean  of  prosperity.  When 
these  two  gentlemen  stopped  building,  it  was  typical  of 
what  tens  of  thousands  of  the  far-seeing  ones  were  doing 
all  over  the  country,  but  no  one  seemed  to  suspect  it, 
and  when,  a  few  months  later,  industrial  depression  de- 
veloped, the  great  mass  of  the  people  seemed  to  be  greatly 
surprised.  But  these  instances  only  illustrate  how  high 
and  low  prices  affect  individuals.  We  will  give  one 
which  illustrates  how  they  affect  a  whole  nation  of  indi- 
viduals. 

In  the  spring  of  1900,  two  gentlemen  sat  at  lunch  in 
one  of  the  New  York  clubs.  One  of  them,  whom  we  will 
call  Mr.  A.,  was  president  of  one  of  the  large  steel  combi- 
nations, which  was  afterwards  merged  into  the  United 
States  Steel  Corporation.  The  other,  whom  we  will  call 
Mr.  B.,  was  a  firm  believer  in  the  theory  that  it  was  high 
prices  which  checked  industrial  prosperity.  Mr.  A.  had 
stated  that  his  company  produced  nine  tenths  of  the 
country's  steel  product  hi  its  particular  line;  that  the 
amount  of  product  it  had  been  asked  to  bid  on  was  more 
than  enough  to  keep  his  mills  and  the  mills  of  his  com- 
petitors full  of  work  for  more  than  a  year;  that  he  in- 
tended to  hold  prices  up,  and,  when  the  capacity  outside 
of  his  mills  was  filled,  the  people  would  be  obliged  to  come 
to  him  and  pay  the  prices  he  had  decided  to  exact.  Mr. 
B.  said:  "Yes,  you  certainly  have  wonderful  power. 
You  can  without  doubt  put  your  prices  as  high  as  you 
please,  and  the  people  must  pay  your  prices  or  forego 
then*  contemplated  construction ;  but  there  is  one  power 
before  which  all  your  power  and  calculations  will  go  down 
like  a  house  of  cards,  that  is,  the  decisions  of  the  individ- 
uals who  hold  the  purse-strings  and  are  to  own  and  pay 
for  these  contemplated  enterprises.  You  cannot  compel 


THE    REAL    CAUSE  133 

these  people  to  build,  and,  if  they  decide  not  to  build,  you 
will  not  sell  them  your  goods.  Your  product  is  not  one 
of  the  necessities  of  life.  A  man  cannot  stop  eating,  but 
he  can  stop  building.  Your  prices  are  more  than  100  per 
cent,  above  the  prices  of  1897  and  1898.  Every  similar 
advance  in  the  cost  of  construction  materials  which  has 
occurred  in  the  last  seventy  years  has  checked  construc- 
tion, and,  if  you  and  the  other  manufacturers  persist  in 
holding  your  prices  at  present  figures,  it  will  do  so  now." 

Mr.  A.  had  laid  down  his  knife  and  fork  during  this 
reply,  and,  after  it  was  finished,  sat  so  long  in  silence  that 
Mr.  B.,  to  break  the  spell,  was  compelled  to  ask  him  what 
he  was  thinking  of  so  intently.  Bringing  his  fist  down 
upon  the  table  with  great  force,  he  said:  "By  George,  I 
am  thinking  that  you  are  right !  The  fact  is,  that  most  of 
the  bids  we  made  as  far  back  as  November  and  December 
have  not  been  answered;  and  when  they  have  been  an- 
swered and  declined,  if  the  parties  have  given  any  reason 
for  their  action,  it  has  almost  invariably  been,  in  sub- 
stance, that  they  have  decided  to  wait  until  prices  come 
down  to  more  reasonable  figures."  Before  the  lunch  was 
finished,  Mr.  A.  said  he  was  going  to  his  office  to  instruct 
his  people  to  win  back  busirjess  at  any  price,  within 
reason,  which  they  might  be  obliged  to  make  to  accom- 
plish it.  At  the  time  this  conversation  occurred,  the 
price  of  construction  materials  had  been  abnormally  high 
for  many  months,  and  the  orders  for  future  delivery 
material  on  the  books  of  manufacturers  were  getting  very 
low. 

These  gentlemen  did  not  meet  again  for  several  months. 
When  they  did,  prices  had  gone  down  tremendously. 
Mr.  A.  followed  his  hand-shake  by  saying,  "I  wish  to  tell 
you  that  I  carried  out  the  plan  of  putting  down  prices 
which  I  told  you  I  had  decided  upon,  and  it  has  been  a 
success.  I  was  obliged  to  put  them  down  enormously, 
but  am  getting  all  my  plants  filled  with  work  for  a  long 
time  ahead." 

In  this  last  illustration,  we  have  an  indication  of  what 


134    INDUSTRIAL    DEPRESSIONS 

apparently  influenced  nine  tenths  of  the  trade  of  a  great 
nation  in  one  important  product. 

The  motive  which  underlies  the  industries  of  a  nation 
is  a  plain,  simple,  uncomplicated  business  consideration. 
It  is  natural,  and  hi  its  cumulative  force  is  all-powerful. 
It  stimulates  production  at  one  period  and  retards  pro- 
duction at  another,  with  equal  consistency.  It  is  just  as 
certainly  in  existence  and  in  full  action  when  it  quietly 
and  relentlessly  reduces  industrial  production  below  the 
normal,  as  it  is  when  all  the  power,  money,  and  energy  of 
the  country  are  driving  it  above  the  normal. 

Why  should  there  be  any  mystery  hi  a  large  falling  off 
in  contracts  for  construction  after  a  large  advance  in  the 
price  of  construction?  When  the  Bank  of  England  makes 
a  large  advance  in  its  rate  of  interest,  the  large  falling  off 
in  borrowing  is  not  regarded  as  a  mystery.  In  each  case 
it  is  simply  the  natural  effect  of  an  inexorable  law. 

Is  it  not  unreasonable  to  believe  that  an  advance  of 
1  per  cent,  per  annum  in  the  interest  rate  will  cause  a 
falling  off  of  millions  in  volume  of  borrowings,  and  that 
an  advance  of  10  to  100  per  cent,  in  the  cost  of  construc- 
tion will  not  cause  a  falling  off  of  millions  in  the  volume 
of  construction?  If  it  were  not  for  the  deceptive  appear- 
ance of  a  large  increase  in  actual  construction,  contempo- 
raneously with  a  large  increase  in  cost  of  construction,  no 
such  absurdity  would  ever  have  gained  lodgment  hi  the 
human  mind. 

REMARKS 

When  we  reflect  that  construction  is  77  per  cent,  of  the 
product  of  man's  industrial  work  outside  of  what  we  have 
grown  to  consider  the  necessities  of  life,  and  that  this 
construction  involves  and  carries  with  it  a  large  share  of 
the  remaining  23  per  cent,  of  the  products  of  the  indus- 
tries, is  there  anjCgoom  to  doubt  that  it  is  the  instinctive 
desire  forgain  that  causes"indUstrlai  booms  ancTTndustrial 
ctepressionjf  In  all  the  affairs  of  civilized  nations,  can 
any  one  name  anything  affecting  the  volume  of  the 


THE    REAL    CAUSE  135 

industries  which  compares  to  this?  Do  not  all  the  other 
alleged  causes  pale  into  insignificance  or  vanish,  hi  com- 
parison with  this  one  alleged  cause? 

Does  the  reader  believe  that  any  one  ever  paid  out  his 
money  to  build  a  factory,  or  ship,  or  railroad  because  of 
"sun  spots,"  " mental  waves,"  or  any  other  mysterious 
influence  which  he  did  not  understand?  Does  the  reader 
not  believe  that  when  people  pay  out  their  savings  in 
such  things,  they  do  it  after  careful  consideration  and 
because  they  wish  to  get  a  revenue  from  it;  and  when 
prices  of  construction  get  so  high  that  they  think  such  an 
in  vestment  will  not  pay  a  fair  revenue  or  a  fair  profit, 
does  he  not  believe  that  the  making  of  contracts  for  such 
investments  then  experiences  a  check? 

It  must  be  remembered  that  we  have  been  searching 
for  a  solution  of  something  which  nine  government  com- 
missions in  seven  different  countries  have  for  twenty 
years  or  more  been  endeavoring  to  solve,  and  which  they 
still  declare  to  be  a  mystery.  Does  this  not  indicate  that 
they  have  not  searched  in  the  right  places?  Is  it  not 
reasonable  to  suspect  that  we  may  find  the  real  cause  in 
something  these  commissions  have  not  suspected,  some- 
thing which  does  not  attract  general  attention  and 
inquiry? 

Now  in  all  these  government  investigations  we  have 
failed  to  find  any  real  effort  to  analyze  the  industries,  or 
any  real  effort  to  find  out  what  was  the  chief  thing  which 
increased  during  a  boom  and  decreased  during  a  depres- 
sion, or  what  was  the  motive  which  stimulated  those 
events.  In  brief,  we  find  no  effort  to  trace  the  matter 
from  the  bare  result  back  step  by  step  hi  an  analytical 
manner  to  the  cause. 

In  all  these  government  investigations,  no  one  has 
touched  upon  the  simple  fact  that  the  great  constructive 
interest  of  the  country  is  not  only  the  branch  of  industry 
of  the  greatest  volume  and  importance,  but  that  it  is  the 
only  branch  in  which  the  great  expansion  and  contraction 
in  volume  can  possibly  occur,  and  that  construction  in- 


136    INDUSTRIAL    DEPRESSIONS 

vestments  are  chiefly  entered  into  for  revenue  and  profit, 
and  that  the  revenue  and  profit  from  them  must  be  re- 
duced one  half,  if  they  are  created  at  double  price;  hence 
that  their  enlargement  or  curtailment,  naturally  and 
rationally,  depends  upon  prices. 

Every  one  admits  that  it  was  the  production  of  iron 
in  Great  Britain,  the  United  States,  Germany,  France, 
and  Belgium,  which  made  these  nations  the  industrial 
nations  of  the  world.  If  iron  made  these  the  industrial 
nations,  what  is  more  likely  than  that  any  great  upheaval 
in  iron  should  influence  an  upheaval  in  the  things  which 
go  with  it  and  are  dependent  upon  it?  And  when  the 
advance  has  influenced  all  the  elements  of  construction 
to  such  an  extent  as  to  advance  its  general  cost  100  per 
cent.,  is  it  not  reasonable  to  expect  the  far-seeing  invest- 
ors of  the  country  to  be  influenced  by  it? 

There  is  a  large  amount  of  construction  which  is  a 
current  necessity,  and  must  go  on  whether  prices  are  high 
or  low;  but  the  great  bulk  of  the  wonderful  increase  in 
construction,  which  makes  up  a  boom,  is  not  a  current 
necessity.  It  is  entered  into  for  the  sole  purpose  of  gain, 
and  when  the  prospect  of  gain  in  such  construction 
ceases,  man  ceases  to  will  preparations  for  its  contin- 
uance and  in  due  time  that  portion  of  construction 
ceases.  Then  production  of  the  thousands  of  smaller 
things,  which  go  with  and  depend  upon  it,  ceases,  and 
industrial  depression  becomes  an  existing  fact. 

For  half  a  century,  the  world  has  been  trying  to  iden- 
tify the  mysterious  cause  of  the  great  increases  and  the 
great  decreases  which  come  to  the  industries  of  the  man- 
ufacturing nations.  In  this  effort  they  have  held  up  to 
view  everything  from  the  plausible  to  the  absurd,  on  the 
earth  and  in  the  heavens,  and  yet  only  one  of  these  hun- 
dreds of  alleged  causes  will  stand  the  test  of  analysis. 
That  one  is  the  natural  effect  of  a  universally  recognized 
law,  the  working  of  which  responds  with  unerring  cer- 
tainty to  a  universally  recognized  motive.  That  motive 
is  ever  present,  in  every  nation,  whether  it  be  of  white 


THE    REAL    CAUSE  137 

men,  yellow  men,  or  black  men.  It  has  been  present  in 
every  country,  and  on  every  day;  it  is  present  in  the 
smallest  business  transaction,  and  in  the  greatest;  it  is 
the  instinctive  desire  for  gain.  Of  all  the  influences  which 
sway  men,  it  is  the  one  which  is  always  active.  Of  the 
thousands  of  alleged  causes  of  the  ups  and  downs  of  busi- 
ness, it  is,  broadly  speaking,  the  one  motive  which  con- 
trols all  men,  at  all  times  and  in  all  places.  What  man 
doubts  that  it  is  this  motive  which  controls  each  individ- 
ual business  transaction?  How  can  it  control  each  indi- 
vidual business  transaction,  and  not  be  the  controlling  force 
of  the  aggregation  of  all  business  transactions? 

But  if  the  high  price  of  construction  is  the  cause  of1 
these  mysterious  industrial  depressions,  then  an  analysis 
of  the  history  of  each  depression  which  has  taken  place  in 
the  industrial  nations  should  show  clearly,  that  it  was  either 
the  direct  result  of  an  external  and  recognized  cause,  or  that 
it  was  preceded  by  an  abnormal  advance  in  the  cost  of  con- 
struction; and  it  should  also  show  clearly,  that  no  such 
advance  in  prices  has  ever  taken  place  in  these  nations  which 
was  net  followed  by  an  industrial  depression. 

To  test  these  requirements,  an  analysis  has  been  made 
of  all  the  industrial  depressions,  and  of  all  the  abnormal 
advances  in  the  prices  of  construction  materials,  that  have 
occurred  since  1832.  Some  of  these  depressions  were 
caused  by  financial  derangement,  and  some  by  industrial 
derangement,  but  the  time  and  conditions  of  each  are  so 
well  marked,  that  analysis  leaves  no  doubt  as  to  which 
kind  of  derangement  was  the  cause  of  each  depression. 


PART  III 

ANALYSIS  OF  ALL  THE  INDUSTRIAL  DEPRESSIONS 
OF  MODERN  TIMES,  WITH  THE  EVIDENCE 
SHOWING  FROM  WHAT  CAUSE  THEY  EACH 
RESULTED 


CHAPTER  XIII 

ANALYSIS   OF  THE    INDUSTRIAL  DEPRESSIONS  FROM 
1833  TO    1887 

THE  six  depressions  which  occurred  during  this  period 
were  each  the  result  of  an  internal  malady.  They 
were  brought  about  by  a  derangement  within  the  indus- 
tries themselves.  Each  of  them  prostrated  the  industries 
of  the  country  for  several  years.  Some  of  them  were 
attended  by  financial  panics,  and  some  were  not.  Those 
depressions  which  were  attended  by  panics  commenced 
one  or  two  years  before  the  panics  occurred,  and  continued 
from  one  to  three  years  after  the  panic  conditions  had 
ceased  to  exist ;  and  yet  these  depressions  have  gone  down 
to  history  as  having  been  caused  by  the  financial  panics 
which  occurred  during  their  continuance,  although  the 
panics  commenced  long  after  the  industrial  depressions 
were  in  full  force,  and  the  depressions  had  in  each  case 
been  recognized  as  an  existing  condition  by  the  entire 
community.* 

THE  FOUR  YEARS'    DEPRESSION   FROM  1836  TO  1839  AND 
THE  ACCOMPANYING  PANIC  OF  1837 

The  years  1834  and  1835  constituted  a  period  of  low 
prices  in  the  United  States. f  The  period  was  character- 
ized by  an  abundance  of  money  and  credit,  and  a  rapid 
increase  in  construction  and  all  other  branches  of  busi- 
ness. This  was  particularly  the  case  in  Great  Britain,! 
the  United  States,§  and  in  France,  ||  the  countries  which 

*  Evidence  establishing  these  facts  will  be  given  with  the  separate 
treatment  of  each  period, 
t  Appendix  Z. 

J  First  Annual  Report  of  the  Commissioner  of  Labor,  page  16. 
§  Ibid.,  page  55.  ||  Ibid.,  page  35. 

141 


142    INDUSTRIAL    DEPRESSIONS 

suffered  most  severely  from  the  industrial  depression. 
The  increase  in  railroad  building,  which  took  place  in 
these  years,  accurately  reflects  the  general  prosperity 
which  obtained.*  From  a  construction  of  151  miles  in 
1833,  there  was  an  increase  to  253  miles  in  1834,  and  to 
465  miles  in  1835,f  thus  more  than  trebling  the  rate  of 
construction  within  two  years  and  exceeding  in  amount 
anything  ever  experienced  up  to  that  time.  The  indus- 
trial revival  reached  its  apex  in  the  high-water  mark  of 
prosperity,  in  1835.  Towards  the  end  of  that  year,  the 
demand  for  delivery  of  materials  so  greatly  exceeded  the 
possible  supply,  that  prices  commenced  to  advance 
rapidly. 

During  1836  the  price  of  No.  1  Foundry  iron  advanced, 
in  Philadelphia,  from  $32.00  to  $50.25  per  ton,  and  Scotch 
pig  iron,  in  New  York,  advanced  from  $38.00  to  $65.00 
(see  Appendix  A).  The  blighting  effect  of  the  advance 
commenced  to  reveal  itself  early  hi  1836,  before  it  had 
advanced  as  much  as  10  per  cent.  Railroad  building  fell 
from  465  miles  in  1835  to  175  miles  in  1836,t  which  was  a 
year  before  the  panic.  As  manufacturing  and  construc- 
tion fell  off  in  volume,  the  materials  ordinarily  consumed 
in  these  industries  commenced  to  accumulate.  During 
the  latter  part  of  1836,  the  accumulation  of  unsold  goods 
became  alarming,  and  in  the  spring  and  summer  of  1837 
prices  of  all  commodities  dropped  enormously,  spreading 
loss  and  disaster  on  all  sides.  Iron  fell  off  in  price  during 
the  first  seven  months  of  1837  nearly  the  full  amount  of 
the  gain  it  had  made  in  price  the  year  before  (see  Appen- 
dices A  &  Z).  The  industries  fell  to  their  lowest  point 
in  the  latter  part  of  1836,  which  was  a  year  before  the 
financial  panic  occurred.  The  panic  must  of  necessity 
have  intensified  the  gloom  and  added  to  the  losses  which 
the  depressions  had  caused,  but  it  does  not  appear  to 
have  lessened  the  volume  of  the  industries,  which  had 
already  been  reduced  to  their  lowest  ebb.  This  is  well 

*  Appendix  O. 

t  Statistical  Abstract  of  the  United  States,  1908,  page  248.    J  Ibid. 


DEPRESSIONS    1833    TO     1887    143 

illustrated  by  railroad  building,  which  dropped  from  465 
miles  in  1835  to  175  miles  hi  1836,  increased  to  224  miles 
hi  1837,  and  to  416  miles  hi  1838.* 

As  the  actual  construction  of  this  period  commenced  to 
fall  off  early  hi  1836  (see  Appendix  O),  it  is  plain  that  the 
contracts  for  it  must  have  commenced  to  fall  off  as  long 
before  this  time  as  the  time  of  contracting  antedated  the 
time  of  completion  of  the  construction.  This  would 
have  undoubtedly  thrown  the  contracting  period  for 
large  enterprises  back  into  1834  and  1835,  at  which  time, 
as  will  be  seen  by  referring  to  Appendix  Z,  the  advance 
in  prices  of  iron  had  not  amounted  to  as  much  as  10  per 
cent.  Thus  it  is  seen  that  the  instinctive  desire  for  gain 
was  as  much  hi  evidence  early  in  the  century  as  at 
the  present  time.  Mark  also  the  significant  fact,  that  the 
depression  was  at  its  worst  hi  1836,  a  year  before  the 
financial  panic.  Even  as  high  an  authority  as  the  late 
Hon.  Carroll  D.  Wright  claims  that  this  depression  was 
caused  by  financial  trouble,!  but  he  gave  no  evidence  to 
support  this  claim.  Without  doubt  he  simply  accepted 
the  same  error  that  the  rest  of  the  world  had  accepted. 
Had  the  Commissioner  proceeded  by  analysis,  and  through 
that  method  realized  the  opposite  character  of  the  causes 
of  panics  and  depressions,  he  would  undoubtedly  have 
excluded  all  financial  measures  from  the  search,  and  thus 
have  been  led  to  discover  the  truth. 

Industrial  conditions  in  Great  Britain,  France,  and 
Belgium,  from  1832  to  1835,  bore  a  marked  resemblance 
to  those  in  the  United  States,  t  Each  experienced  great 
increase  in  the  volume  of  the  industries,  easy  money, 
great  prosperity,  and  great  advance  hi  the  price  of  labor 
and  construction  materials.  Germany  at  that  tune  was 
not  a  united  empire,  but  Prussia  and  some  of  the  other 
German  states  had  made  considerable  progress  in  manu- 
facturing. The  depression  in  the  industries  appears  to 

*  Statistical  Abstract  of  the  United  States,  1908,  page  248. 
t  First  Annual  Report  of  the  Commissioner  of  Labor,  page  55. 
J  Ibid.,  pp.  15-35-44. 


144    INDUSTRIAL    DEPRESSIONS 

have  commenced  much  earlier,  and  to  have  been  most 
severe  in  Great  Britain  and  France  and  least  so  hi  the 
German  States.  This  was  entirely  logical.  England 
and  France  were  the  leading  manufacturing  nations,  and 
had  been  the  largest  iron-producers  of  the  world  for  cen- 
turies, while  Germany  was  far  behind  them  in  the  extent 
of  her  manufacturing  industries. 

History  shows  that  where  iron  is  most  largely  produced 
it  is  most  largely  consumed,  and  where  iron  is  most  largely 
consumed,  there  the  use  of  machinery  and  product  of 
manufacturing  is  greatest.  Of  the  two  countries,  Great 
Britain  was  threefold  the  largest  producer  of  iron,  and 
much  the  greatest  in  the  manufacturing  and  mechanical 
industries.  She  commenced  to  experience  the  revival  of 
her  industries  one  or  two  years  before  it  came  to  the 
other  countries;  she  experienced  the  effect  of  high  prices 
first,  and  hi  consequence  her  industries  were  on  the 
down  grade  one  or  two  years  in  advance  of  the  other 
countries. 

Compared  with  to-day,  the  industries  in  these  nations 
were  small  at  the  period  under  discussion;  but  such  as 
they  were,  the  great  advance  hi  price  of  construction 
materials  seems  to  have  had  a  disastrous  effect  upon 
them,  and  with  a  degree  of  severity  directly  proportioned 
to  its  magnitude. 

All  five  of  the  countries  named  experienced  a  finan- 
cial panic,  Great  Britain  near  the  close  of  1836  and  the 
United  States  near  the  close  of  1837. 

THE  THREE  YEARS*   DEPRESSION  FROM   1846  TO   1848 

The  years  1843  and  1844  constituted  another  period 
of  low  prices.*  The  industries  commenced  to  revive  in 
1844,  but  did  not  gain  full  headway,  as  they  were  checked 
by  a  sudden  and  enormous  advance  in  prices  in  the 
spring  of  1845  (see  Appendix  Z).  The  volume  of  con- 
tracts made  during  the  low-priced  period  helped  business 
moderately  for  a  time.  During  the  next  eighteen  months, 

*  See  Appendix  Z. 


DEPRESSIONS     1833    TO     1887      145 

prices  declined  steadily.  By  August,  1846,  they  had 
settled  back  nearly  to  the  low  level  of  two  years  before, 
after  which  contracts  for  construction  revived  rapidly, 
and  the  latter  part  of  that  year  and  the  year  1847  was  a 
period  of  marked  prosperity,  surpassing  anything  ever 
before  experienced.  In  the  latter  part  of  1847,  prices 
again  advanced,  contracting  for  construction  was  again 
checked,  actual  construction  fell  off  in  1849,  and  did  not 
again  revive  until  stimulated  by  the  low-priced  period  of 
1850  to  1852. 

This  depression  was  one  of  great  severity.  No  finan- 
cial disturbance  of  sufficient  severity  to  be  designated  as 
a  panic  occurred  during  its  continuance,  yet  the  depres- 
sion was  much  more  severe  upon  the  industries  than  the 
depression  of  1857,  which  was  attended  by  a  panic.  The 
public  to-day  hardly  remembers  this  depression,  simply 
because  it  was  not  accentuated  by  a  panic. 

THE   THREE    TO    FOUR   YEARS*    DEPRESSION    FROM    1855    TO 
1858  AND  THE   PANIC   OF   1857 

The  years  1850,  1851,  and  part  of  1852  constituted  a 
third  period  of  low  prices,*  during  which  all  the  industries 
revived.  The  volume  of  actual  construction  during  the 
latter  half  of  1852  carried  the  demand  for  construction 
materials  beyond  the  capacity  of  the  country  to  supply, 
and  prices  advanced  rapidly.  Between  the  summers  of 
1852  and  1854,  No.  1  Foundry  pig  iron  advanced  87  per 
cent,  in  Philadelphia,  and  163  per  cent,  in  Cincinnati. 
Scotch  pig  iron  advanced  123  per  cent,  in  New 
York.f 

This  period  of  two  years  was  a  remarkable  demonstra- 
tion of  how  perfectly  prices  regulated  the  volume  of  con- 
tracts for  construction,  and  how  perfectly  the  supply  of 
materials  regulated  prices.t  As  far  as  the  United  States 
was  concerned,  the  famine  in  the  iron  supply  was  most 
severe  in  the  west.  Prices  there  advanced  more  rapidly 
and  to  a  greater  degree  than  in  the  east,  and  the  check  to 

*  See  Appendix  Z.       f  See  Appendices  A  and  Z.       J  See  Appendix  Z. 


146    INDUSTRIAL    DEPRESSIONS 

construction  with  its  resultant  depression  was  much  more 
severe.  In  Great  Britain,  the  supply  of  iron  was  so 
ample  in  1853  that  prices  declined  enormously.  The 
apex  of  prosperity  in  the  industries  was  reached  in  some 
sections  of  the  United  States  in  1853,  and  in  others  hi 
1854.  The  decline  in  the  price  of  Scotch  iron  helped 
business  hi  Great  Britain  and  the  eastern  States,  and  in 
these  places  the  height  of  prosperity  came  in  1854.  The 
severity  of  the  depression  which  followed  was,  in  some 
places,  greatest  in  1854,  and  in  others  in  1855,  which  was 
from  two  to  three  years  before  the  panic. 

Business  revived  somewhat  in  1856,  following  the  great 
decline  hi  prices  in  1855,*  but  this  revival  occurred  when 
stocks  of  iron  and  other  construction  materials  were 
almost  exhausted,  and  prices  advanced  again  almost 
immediately.  This  again  brought  a  check  to  construc- 
tion. The  panic  of  1857  occurred  while  the  industries 
were  already  down  to  a  depression  basis.  In  fact  they 
were  at  a  much  lower  ebb  hi  1855  than  during  or  after  the 
panic. 

This  period  of  depression  has  gone  down  to  history  as 
one  of  the  most  severe  on  record.  On  the  contrary,  the 
facts  show  that  it  was  simply  the  short-lived  panic  and  its 
financial  results  which  were  so  severe.  The  industries 
were  not  as  much  affected  as  they  were  in  the  two  periods 
of  depression,  in  and  about  1847  and  in  and  about  1867, 
which  were  not  attended  by  any  financial  disturbance  of 
sufficient  severity  to  be  called  a  panic. 

All  of  the  pronounced  features  of  a  typical  period  of 
boom  and  depression,  namely,  the  revival  in  the  volume 
of  business  on  low  prices,  the  abnormal  advance  in 
prices,  the  decline  in  the  volume  of  the  industries,  fol- 
lowed by  an  accumulation  of  unsold  goods  and  a  fall  in 
prices,  had  taken  place  at  least  two  years  before  the 
financial  panic,  f  This  was  conclusive  evidence  that  the 
depression  was  entirely  independent  of  the  panic. 

This  period  is  particularly  interesting,  as  it  illustrates 

*  See  Appendix  Z.  t  See  Appendices  0  and  Z. 


DEPRESSIONS     1833    TO    1887      147 

the  hopeless  jumble  of  cause  and  effect,  arrived  at  and 
accepted  by  the  public  mind,  through  synthetic  reason- 
ing. No  matter  how  separate  and  distinct  may  be  the 
conditions  of  depressions  from  the  conditions  of  panics, 
and  no  matter  how  much  earlier  the  depression  may  occur 
than  the  panic,  yet,  in  after  years,  the  panic  will  invariably 
be  accepted  as  having  been  the  cause  of  the  depression, 
simply  because  a  panic,  being  vivid  and  startling,  is 
the  only  thing  remembered  after  a  few  years  have 
elapsed. 

This  mistake  is  not  peculiar  to  the  United  States.  It 
is  the  same  in  the  other  four  industrial  nations.  The 
depression  occurred  in  England  in  the  latter  part  of  1854 
and  in  1855,  in  Germany  and  Belgium  in  1855,  and  in 
France  in  1856.  In  England  the  panic  occurred  in  1857, 
which  was  two  years  after  the  depression  commenced, 
and  yet  there,  as  well  as  here,  the  public  now  believe  the 
panic  to  have  been  the  cause.  In  France  they  had  no 
financial  disturbance  of  sufficient  severity  to  be  called  a 
panic,  and  there,  strange  to  say,  they  attribute  the  de- 
pression to  "the  panic  in  the  United  States,"  although 
the  panic  in  the  United  States  occurred  nearly  a  year  later 
than  the  depression  in  France. 

THE  FIVE  YEARS'  DEPRESSION  FROM  1865  TO  1870 

The  years  1860,  1861,  and  the  first  part  of  1862  consti- 
tuted the  fourth  low-priced  period.*  In  1862  commenced 
what  we  have  hi  later  years  learned  to  call  a  boom.  The 
demand  for  iron  doubled  within  a  few  months,  and,  as  it 
was  impossible  to  supply  such  a  demand,  the  price  ad- 
vanced enormously.  The  war,  which  had  helped  to 
depress  business  in  1861  and  1862,  helped  to  increase  it  in 
1863  and  1864.  For  several  months  during  1864  there 
was  an  iron  famine.  On  several  occasions  the  price  of 
iron  was  advanced  $5.00  per  ton,  between  the  afternoon 
of  one  day  and  the  morning  of  the  next.  Many  factories 
were  time  after  time  obliged  to  close  their  works  because 

*  See  Appendix  Z. 


148    INDUSTRIAL    DEPRESSIONS 

of  the  lack  of  iron,  although  they  had  demand  enough 
to  have  kept  them  running  night  and  day.  Consumers 
fairly  pleaded  with  the  iron  merchants  for  even  a  little  to 
tide  them  over  the  stringency.  As  a  special  inducement, 
some  consumers  deposited  money  with  the  iron  merchants, 
weeks  in  advance,  simply  with  the  idea  of  establishing  a 
prior  claim  on  the  first  iron  that  could  be  spared.  Some 
consumers  promised  their  entire  future  trade  to  certain 
merchants,  if  they  would  give  them  the  preference  on 
the  first  iron  they  received.  Others  threatened  never  to 
deal  with  iron  houses  who  would  not  keep  them  supplied 
with  iron.  Scotch  pig  iron,  by  1864,  had  advanced  300 
per  cent,  in  New  York,  No.  1  Foundry  295  per  cent,  in 
Philadelphia,  and  344  per  cent,  in  Cincinnati.*  For  a 
time,  all  that  could  be  produced  or  imported  was  taken, 
but  during  the  latter  part  of  the  advance,  which  ranged 
from  $35.00  in  August,  1863,  to  $80.00  in  August,  1864, 
the  situation  changed.  Construction  and  manufacturing 
for  war  purposes  continued,  but  for  other  purposes  in- 
vestment construction  came  almost  to  a  standstill.  The 
consumption  of  iron,  which  had  advanced  from  725,000 
tons  in  1862  to  1,116,000  tons  in  1864,  dropped  to  882,000 
tons  in  1865.  Construction  fell  off  tremendously.  Stocks 
of  construction  materials  accumulated  rapidly  on  all  sides, 
and  the  price  of  iron  fell  50  per  cent,  within  the  next 
ten  months. 

The  public  attributed  all  these  remarkable  occurrences 
to  the  great  Civil  War.  There  is  no  doubt  that  the  war 
had  a  great  influence,  but  there  was  no  war  in  England, 
France,  Germany,  and  Belgium,  yet,  with  the  exception 
of  Germany,  they  all  suffered  severely  from  an  industrial 
depression.  Germany  suffered  less,  because  her  indus- 
tries were  less  extensive.  Iron  was  not  so  powerful  a 
factor  with  her  in  those  days,  and  prices  did  not  realize 
so  large  an  advance.  The  industrial  depression  was  very 
severe  in  three  of  these  countries,  and  lasted  for  several 
years  in  all  four  of  them.  In  1866,  during  the  depression, 

*  See  Appendix  A. 


DEPRESSIONS     1833    TO     1887      149 

there  was  a  financial  panic  in  England  and  in  France,  but 
this  did  not  take  place  until  the  depression  had  been  felt 
for  more  than  a  year;  moreover,  there  was  no  panic  in 
either  the  United  States,  Germany,  or  Belgium,  although 
a  depression  existed  in  all  three.  This  would  seem  to 
indicate  that  some  depression  cause,  common  to  them  all, 
and  entirely  outside  of  the  panics,  was  simultaneously 
at  work  in  each  of  these  five  countries. 

THE   FOUR   TO    FIVE   YEARS7   DEPRESSION   FROM    1872    TO 
1876  AND   THE   PANIC   OF   1873 

The  years  1870  and  1871  constituted  the  fifth  period 
of  low  prices,*  during  which  all  the  mechanical  industries 
revived.  The  consumption  of  pig  iron  rose  from  1,665,000 
tons  in  1870  to  2,548,000  tons  in  1872.f  Railroad  build- 
ing in  1871  reached  the  enormous  proportion  of  7,379 
miles,  J  the  largest  railroad  construction  ever  known  up 
to  that  time.  The  advance  in  the  price  of  Scotch  pig 
iron  in  New  York  from  January,  1871,  to  September, 
1872,  amounted  to  103  per  cent.,  and  the  prices  of  all 
other  construction  materials  advanced  in  its  wake,  while 
advances  in  the  price  of  labor  and  strikes  for  higher 
wages  were  of  frequent  occurrence. 

Reflecting  these  advances  in  labor  and  materials,  the 
cost  of  finished  construction  advanced  from  50  to  100  per 
cent.,  from  the  spring  of  1871  to  the  summer  of  1872.  The  • 
effect  of  the  advances  in  price,  in  checking  the  volume  of 
contracts  for  new  constructive  enterprises,  was  not  only 
early,  but  rapid  and  pronounced.  Contracts  had  almost 
ceased  at  the  beginning  of  1872.  Railroad  construction 
dropped  from  7,379  miles  in  1871,  to  5,878  miles  in  1872, 
to  4,097  miles  in  1873. §  The  imports  of  iron  and  steel 
and  the  manufacture  thereof,  dropped  from  1,325,034 
tons  in  1872  to  707,661  tons  in  1873.  The  production  v 
of  rails  commenced  to  fall  off  in  January,  1872,  twenty- 

*  See  Appendix  Z.  t  See  Appendices  Z  and  A. 

J  United  States  Statistical  Abstract. 

§  United  States  Statistical  Abstract,  also  Appendix  O. 


150    INDUSTRIAL    DEPRESSIONS 

one  months  before  the  panic,  and  declined  steadily  from 
that  time.*  Thus  for  twelve  to  twenty-one  months 
before  the  panic  of  1873  took  place,  the  microbe  of  indus- 
trial depression  was  shown  to  be  at  work.  Within  the 
twelve  months  immediately  preceding  the  panic,  the 
mechanical  industries  had  fallen  off  largely.  The  price 
of  pig  iron  had  dropped  $10.00  per  ton,  bar  iron  $39.00 
per  ton,  and  iron  rails  $19.00  per  ton. 

None  of  these  calamities  was  the  effect  of  a  panic. 
No  panic  conditions  showed  themselves  until  the  indus- 
trial conditions  had  already  brought  the  mechanical 
industries  to  a  very  low  ebb,  but  not  to  its  lowest  ebb,  as 
construction  in  this  case  continued  to  fall  off  hi  volume 
for  about  two  years  after  the  panic. 

This  is  another  illustration  of  how  certainly  every  long- 
lived  and  mysterious  depression  which  is  accompanied 
by  a  panic  goes  down  to  history  as  the  effect  of  the 
panic,  no  matter  what  overwhelming  proofs  may  be  given 
to  the  contrary.  The  public  in  after  years  only  remembers 
the  startling  and  spectacular  panic. 

In  Great  Britain  it  was  the  same.  The  panic  came  in 
November,  1873,  while  the  depression  commenced  from 
one  to  two  years  before.  From  the  following  quotation, 
it  can  be  seen  how  exactly  the  conditions  surrounding  the 
mechanical  industries  in  England  during  1872  corresponded 
to  those  in  the  United  States.  ' '  The  Engineer, "  of  London, 
in  February,  1873,  says: 

"The  progress  of  events  during  1872  will  not  soon  be  forgotten  by  en- 
gineers. The  position  assumed  by  the  working  classes,  and  the  unprece- 
dented demand  for  iron  and  machinery,  combined  to  raise  the  cost  of  all 
the  principal  materials  of  construction  to  a  point  absolutely  without 
parallel." 

"The  Economist,"  of  London,  in  March,  1873,  said: 

"Of  all  the  event»of  the  year  (1872)  the  profound  economic  changes 
generated  by  the  rise  of  prices  and  wages  in  this  country,  in  Central  and 


Western  Europe,  and  in  the  United  States,  has  been  the  most  full  of 
moment." 

*  Failure  of  Jay  Cooke  &  Co.,  September  18,  1873.  —  Stock  Exchange 
closed  September  20,  1873. 


DEPRESSIONS     1833    TO     1887      151 

CONDITIONS  IN  THE  OTHER  INDUSTRIAL  NATIONS  AT  THIS 

PERIOD 

The  business  conditions  in  Great  Britain,  which  at 
this  time  produced  about  one  half  of  the  pig  iron  con- 
sumed in  the  world,  and  was  the  greatest  industrial  nation 
at  that  period,  are  very  instructive.  The  panic  precipi- 
tated by  the  failure  of  Overend,  Gurney  &  Co.,  on  May  12, 
1867,  had  about  spent  its  force  by  the  end  of  the  year. 
During  the  greater  part  of  1868-1869  and  1870  prices 
ruled  low,  and  the  industries  revived  rapidly.  The  years 
1870,  1871,  and  1872  comprised  a  period  of  wonderful 
activity  hi  the  industries  and  prices  of  labor,  and  con- 
struction materials  advanced  enormously.  The  Franco- 
Prussian  war,  which  broke  out  so  suddenly  in  July,  1870, 
had  but  little  depressing  effect.  The  interest  rate  was 
3|  per  cent,  on  July  21,  6  per  cent.  August  4,  and  2\  per 
cent.  September  29.  A  tremendous  amount  of  construc- 
tion was  undertaken  in  1871  and  the  first  part  of  1872. 
The  unnoticed  and  mysterious  down-turn  in  the  industrial 
tide  came  early  in  1872,  and  although  prices  made  their 
final  and  greatest  advance  in  1873,  the  actual  volume  of 
the  industries  was  much  less  hi  1873  than  in  1872,  and  less 
in  1872  than  in  1871.  A  reduction  in  wages,  considered 
imperative  before  the  close  of  1872,  brought  on  a  serious 
strike.  The  Bank  of  England's  rate  was  advanced  from 
3  per  cent.  August  21,  to  4  per  cent.  September  25,  and 
9  per  cent.  November  1,  which  was  contemporaneous 
with  the  financial  panic.  Thus  that  country  experienced 
the  premonitory  symptoms  of  a  down  grade  in  the  indus- 
tries a  year  before  the  symptoms  of  a  down  grade  in  the 
finances,  and  realized  the  actual  and  visible  effect  of  the 
down  grade  in  the  industries  a  year  before  the  visible 
effect  of  the  down  grade  in  finances  became  apparent; 
yet  the  industrial  depression  in  Great  Britain  has  erro- 
neously gone  down  in  history  as  the  result  of  the  financial 
panic. 

This  universal  error  is  the  result  of  failure  to  recognize 


152    INDUSTRIAL    DEPRESSIONS 

that  finances  and  industries  are  two  separate  and  distinct 
forces,  that  each  can  be  affected  by  the  other,  but  that 
each  has  such  different  qualities  that  it  may  for  a  time 
move  entirely  independently  of  the  other. 

Turn  now  to  the  relative  conditions  of  France  and 
Germany  (then  a  united  empire).  France  had  recently 
paid  Germany  the  enormous  war  indemnity  of  5,500,000,- 
000  francs.  With  this,  Germany  paid  her  national  debt, 
making  money  abnormally  abundant  in  Germany  and 
correspondingly  scarce  in  France.  As  a  result,  the  in- 
dustries in  Germany  were  keenly  stimulated;  bankers 
actually  had  their  agents  out,  soliciting  manufacturers 
to  take  loans  for  the  enlargement  of  their  industrial 
enterprises  at  1  per  cent,  per  annum,  and  even  as  low  as 
f  of  1  per  cent.  The  demand  for  labor  and  materials 
rose  to  unheard-of  figures.  The  microbe  of  industrial 
depression  (high  prices  of  construction)  was  at  work  with 
great  vigor.  The  down-turn  in  the  tide  of  industrial 
prosperity  came  and  grew  rapidly,  while  money  was  so 
plentiful  that  it  was  begging  for  borrowers.  The  motive 
which  controls  the  volume  of  the  industries  in  all  lands 
and  at  all  times — "the  instinctive  desire  for  gain "  —stim- 
ulated the  industries  to  an  enormous  extent  while  prices 
were  low,  but  it  checked  them  to  an  enormous  extent 
soon  after  prices  commenced  to  advance,  in  spite  of  the 
great  abundance  of  idle  money  and  the  abnormally  low 
interest  rates. 

The  check  to  the  production  of  factories,  stores,  and 
other  enterprises  resulted  in  an  enormous  accumulation 
of  the  materials  ordinarily  consumed  in  these  enterprises. 
The  accumulation  of  unsold  goods  resulted  in  a  continued 
great  fall  in  prices,  and  many  failures  followed.  As 
Germany's  industries  had  by  this  time  grown  to  great 
proportions,  so  she  suffered  greatly  from  the  industrial 
depression  which  followed.  For  years,  all  her  industries 
remained  in  a  badly  crippled  condition,  and  did  not  show 
signs  of  recovery  until  1879. 

Now  turn  to  the  relative  condition  of  France  during 


DEPRESSIONS     1833    TO     1887       153 

this  same  period.  Her  finances  were  crippled  by  the 
stupendous  war  indemnity  she  paid  to  Germany.  Her 
whole  population  made  haste  to  pour  their  savings  into 
the  treasury  of  the  nation.  The  war  indemnity  was 
paid  more  quickly  than  any  one  supposed  possible.  It 
left  the  people  cramped  for  means,  and  in  consequence 
there  was  no  great  revival  hi  the  industries.  Prices  rose 
moderately,  it  is  true,  but  it  was  largely  in  consequence 
of  the  demand  for  materials  from  the  prosperous  nations 
about  her.  The  moderate  advances  in  prices  had  their 
due  effect,  but  this  effect  was  commensurately  small,  as 
the  revival  of  the  industries  had  been  small.  The  result 
was  that  the  industries  of  France,  during  this  period, 
suffered  less  than  the  industries  of  any  one  of  the  great 
industrial  nations.  In  fact,  statistics  show  very  little 
change  in  the  volume  of  her  industries  at  any  time  during 
this  period.  She  suffered  from  a  financial  panic  hi  1873, 
but  this  was  to  be  expected  in  her  crippled  financial 
condition. 

Now  turn  to  Belgium,  small  in  size  but  proportionately 
great  in  her  industries.  She  was  the  only  one  of  the  five 
industrial  nations  that  did  not  experience  a  financial  panic 
during  this  period.  On  the  contrary,  she  suffered  from 
a  plethora  of  capital.  Interest  on  deposits  fell  to  i  of  1 
per  cent,  per  annum,  and  good  commercial  paper  was  taken 
eagerly  at  -|  of  1  per  cent,  and  1  per  cent.,  and  yet 
she  suffered  very  seriously  from  an  industrial  depression, 
which  lasted  from  1873  to  1879.  She  experienced  the 
same  condition  of  extraordinary  prosperity  to  her  indus- 
tries in  1870,  1871,  and  1872,  with  consequent  abnormally 
high  prices,  but  notwithstanding  the  great  congestion  of 
money  in  her  bank  vaults,  her  captains  of  industry  showed 
the  same  inclination  to  pour  their  money  into  all  kinds 
of  industrial  enterprises  when  prices  were  low,  and  to  hold 
on  to  their  money  when  prices  were  high.  They  possessed 
the  same  " instinctive  desire  for  gain"  that  other  people 
have,  and  "that  ever-present  motive"  worked  with  them 
in  the  same  way  that  it  did  with  other  people,  but  they 


154    INDUSTRIAL    DEPRESSIONS 

did  not  suspect  it,  nor  recognize  it  as  the  cause  of  the 
depression. 

The  citizens  of  Belgium  who  wrote  upon  economic 
questions  at  that  time  appear  to  have  been  very  much 
embarrassed  in  their  efforts  to  account  for  this  industrial 
depression.  In  the  United  States,  Great  Britain,  France, 
and  Germany  it  was  apparently  a  simple  matter,  for 
when  the  financial  panics,  which  occurred  in  each  of  those 
four  countries,  had  subsided,  they  had  simply  to  attribute 
the  industrial  depression  which  continued  to  the  finan- 
cial panic.  The  great  mass  of  the  people  accepted  this 
explanation,  and  it  has  so  gone  down  in  history. 

In  Belgium,  however,  people  were  driven  to  account 
for  it  in  some  other  way.  Georges  de  Laveleye,  editor  of 
the  Moniteur  des  Interets  Materiels,  of  Brussels,  declared 
that  the  long-depressed  period  and  the  accumulation  of 
money  was  the  consequence  of  a  definite  stage  of  industry 
having  arrived,  which  was  never  before  reached,  namely, 
that  "the  industrial  activity  of  the  last  half-century 
had  resulted  in  fully  equipping  the  civilized  countries  of 
the  world  with  economic  tools,  and  that  the  work  of  the 
future  must  necessarily  be  repair  rather  than  construc- 
tion." What  would  M.  de  Laveleye  have  thought  if  he 
could  have  imagined  the  industrial  growth  which  occurred 
in  all  the  industrial  nations  thirty  years  later,  represented 
by  a  volume  of  construction,  in  some  of  the  nations,  from 
500  to  1000  per  cent,  greater  than  the  construction  which 
he  predicted  would  never  again  be  equalled? 

It  would  be  hard  to  find  a  period  in  modern  times  when 
general  and  financial  conditions  were  so  radically  different 
in  these  five  nations.  Many  of  the  contributory  causes 
of  prosperity  and  depression  were  pulling  in  opposite 
directions  in  these  nations,  but  there  was  one  condition, 
high  prices  of  construction,  which  existed  in  all  of  them, 
and  in  the  degree  which  this  existed  in  each  it  checked 
construction  in  each.  In  the  exact  degree  that  construc- 
tion was  checked,  each  suffered  from  industrial  depres- 
sions. This  was  a  rare  opportunity  to  have  discovered 


DEPRESSIONS     1833    TO    1887      155 

the  true  cause  of  these  mysterious  industrial  depressions. 
If  any  one  had  taken  the  time  to  analyze  all  the  business 
conditions  in  each  of  these  five  nations,  he  must  necessa- 
rily have  discovered  the  one  cause  which  existed  in  all 
of  them  and  brought  industrial  depression  to  all. 

THE  FOUR  YEARS'  DEPRESSION  FROM  1882  TO  isss 

The  years  1877,  1878,  and  the  first  half  of  1879  consti- 
tuted the  sixth  period  of  low  prices.*  In  1878  the  indus- 
tries commenced  to  revive.  The  consumption  of  iron 
rose  from  2,500,000  tons  in  1878  to  4,900,000  tons  in 
1881.  The  stock  of  iron  was  soon  exhausted;  prices 
commenced  to  advance,  in  the  spring  of  1879,  and  within 
twelve  months  Scotch  pig  iron  had  advanced  84  per  cent, 
in  New  York,  No.  1  Foundry  148  per  cent,  in  Philadel- 
phia, and  125  per  cent,  in  Cincinnati.! 

The  unprecedented  amount  of  manufacturing  and 
construction  contracts,  placed  while  the  low  prices  con- 
tinued in  1878  and  1879,  kept  the  mechanical  industries 
at  high  tide  well  into  the  year  1882.  The  subsequent 
depression  revealed  itself  gradually,  and  was  not  attended 
by  a  financial  panic,!  although  there  were  many  impor- 
tant failures,  several  minor  money  flurries,  and  some 
Clearing  House  certificates  issued  in  1884.  Railroad 
building,  which  was  11,568  miles  in  1882,  the  largest  ever 
known  up  to  that  date,  fell  back  to  6,741  miles  in  1883. 

The  down  grade  continued  steadily,  from  1882  to 
1885,  when  railroad  building  had  fallen  to  2,866  miles, 
and  the  consumption  of  iron  had  fallen  to  4,348,844  tons. 
This  depression  lasted  from  three  to  four  years.  The 
industries  did  not  commence  to  recover  until  1886. 

This  depression  was  experienced  by  all  the  five  indus- 
trial nations,  and  was  purely  industrial  in  character,  if 
we  except  the  minor  money  flurries  in  the  United  States 
and  France,  which  can  hardly  be  called  panics.  The 
depression  is  on  record  as  having  commenced  in  England 

*  See  Appendix  Z.  f  See  Appendix  A. 

t  First  Annual  Report  of  the  Commissioner  of  Labor,  page  64. 


156    INDUSTRIAL    DEPRESSIONS 

a  few  months  later  than  in  the  other  four  countries.  It 
continued  about  four  years  in  all  five  countries,  and  was 
so  severe  and  long-continued  that  several  government 
commissions  were  appointed  to  investigate  its  cause,  yet, 
like  the  depressions  of  1847  and  1867,  because  there  was 
no  great  and  general  financial  panic  attending  it  to  make 
it  impressive,  it  is  to-day  hardly  remembered  in  any  of 
these  countries. 

REMARKS  ON  THE   WHOLE   PERIOD,    1832  TO   1886 

Up  to  this  point  we  have  considered  three  industrial 
depressions,  known  as  the  depressions  of  1847,  1867,  and 
1882,  during  which  there  were  in  the  United  States  no 
severe  accompanying  panics,  and  three,  known  as  the 
depressions  of  1837,  1857,  and  1873,  during  which  very 
severe  financial  panics  occurred;  but  chronological  his- 
tory shows  that  in  the  three  last  named  periods  their 
prominent  events,  namely,  the  revival  in  the  volume  of  the 
industries,  the  abnormal  advance  in  prices,  the  decline  in 
the  volume  of  the  industries,  the  accumulation  of  unsold 
stocks,  the  fall  in  prices,  and  the  recognized  condition 
of  industrial  depression,  had  taken  place  from  one  to  two 
years  before  the  panics  took  place. 

Among  the  characteristics  common  to  all  of  these  six 
depressions  was  a  radical  shrinking  in  the  volume  of  the 
industries,  without  any  universally  recognized  cause,  and 
the  shrinkage  in  each  case  commencing  when  both  finan- 
cial and  industrial  conditions  appeared  to  be  so  prosper- 
ous that  the  public  were  almost  unanimously  predicting 
a  long  continuance  of  prosperity. 

In  the  case  of  the  three  depressions  which  were  accom- 
panied by  severe  panics,  the  shrinkage  in  the  volume  of 
the  industries  commenced  a  long  time  before  panic  con- 
ditions appeared.  In  the  1837  period,  the  shrinkage 
amounted  to  more  than  50  per  cent,  in  1836,  a  year 
before  the  panic.  In  the  1857  period,  the  shrinkage  was 
greatest  in  1854  and  1855,  two  and  three  years  before  the 
panic.  In  the  1873  period,  the  shrinkage  commenced 


DEPRESSIONS     1833    TO     1887      157 

twenty-one  months  before  the  panic.  The  industrial 
depressions  were  existing  facts  before  any  sign  of  panic, 
in  each  of  these  three  cases.  The  depressions  were  some- 
thing distinct  and  apart  from  the  panics,  and  would  have 
occurred  and  run  their  course  even  if  there  had  been  no 
accompanying  panic.  The  depressions  which  culminated 
in  1847,  1867,  and  1882,  although  not  attended  by  severe 
financial  panics,  lasted  as  long  as  the  three  depressions  cited 
above,  which  were  attended  by  severe  financial  panics. 

While  it  is  true  that  industrial  depressions  do  at  times 
result  from  financial  panics,  just  as  they  do  at  times  result 
from  war,  pestilence,  famine,  or  some  other  great  calamity 
outside  of  the  industries  themselves,  yet  when  this  is  the 
case,  the  cause  is  apparent  to  all.  There  is  no  mystery 
about  such  depressions. 

But  depressions  which  originate  from  panics  are  not 
the  subject  of  this  investigation.  What  the  industrial 
nations  are  seeking  to  know  is,  what  causes  the  depres- 
sions which  take  place  in  the  absence  of  any  recognized 
cause — the  depressions  which  come  in  the  midst  of  "  great 
prosperity  and  bright  prospect  for  its  continuance." 
What  is  the  mysterious  and  powerful  force  which  is  so 
overmastering  and  irresistible  that  it  overrides  and  sub- 
merges all  the  visible  and  powerful  causes  of  prosperity? 
What  is  this  cause,  which  is  so  obscure  and  mysterious 
as  to  escape  notice,  and  which  is  so  hidden  and  perplexing 
that  it  has  baffled  all  the  searchers,  both  national  and 
individual,  who  have  for  years  endeavored  to  discover  and 
expose  it?  What  brings  about  these  stupendous  national 
calamities,  which  develop  so  mysteriously,  which  creep 
over  and  become  fastened  upon  a  country  before  they  are 
even  suspected,  which  transform  industrial  exhilaration 
into  industrial  gloom,  and  which  result  in  a  reduction  of 
thousands  of  millions  per  annum  in  the  earnings  of  the 
people?  This  is  the  kind  of  depression  which  the  world 
has  learned  most  to  dread,  and  which  so  many  of  the 
nations  have  appointed  government  commissions  to  in- 
vestigate in  the  hope  of  discovering  their  cause. 


158    INDUSTRIAL    DEPRESSIONS 

No  one  can  make  a  careful  analysis  of  this  period  of 
fifty-five  years,  between  1832  and  1887,  without  being 
profoundly  impressed  by  the  fact  of  how  completely  the 
price  of  iron  and  presumably  of  all  other  construction 
materials  controlled  the  volume  of  construction.  Wars, 
financial  panics,  etc.,  undoubtedly  had  their  effect  in 
accelerating  or  retarding  the  existing  trend  of  business, 
just  as  everything  else  had  its  effect,  but  the  combined 
effect  of  all  these  external  things  does  not  in  a  single 
instance  appear  to  have  changed  the  inexorable  trend  of 
investment  construction.  In  this  period,  as  well  as  all 
periods,  large  construction  depends  upon  whether  or  not 
it  can  be  produced  at  a  cost  which  promises  to  pay  a 
satisfactory  revenue. 

The  six  depressions  we  have  just  reviewed  are  six 
object  lessons.  They  extend  over  a  period  greater  than 
half  a  century,  during  which  the  industries  of  the  country 
grew  from  an  iron  consumption  of  about  200,000  tons  to 
a  consumption  of  over  6,000,000  tons.  This  period  was 
long  enough  to  have  insured  the  occurrence  of  almost 
everything  which  influenced  the  increase  or  decrease  in 
the  volume  of  business.  During  this  period  the  country 
was  under  the  control  of  two  different  political  parties. 
Tariff  was  part  of  the  time  high,  and  part  of  the  time 
low;  paper  money  was  during  long  periods  at  par  with 
gold,  and  at  one  time  gold  was  worth  two  and  one  half 
times  as  much  as  paper  money.  The  period  covered 
time  of  war  and  time  of  peace;  the  fluctuations  in  the 
price  of  the  necessities  of  life,  of  labor,  and  of  construction 
materials,  were  enormous,  and  in  the  latter  occurred  no 
less  than  ten  times  (see  page  204).  Many  panics 
occurred;  some  of  them  were  very  severe,  while  some  were 
so  slight  as  to  be  now  almost  forgotten.  It  would  be 
difficult  to  name  any  kind  of  occurrence  or  condition  which 
affects  business,  that  did  not  take  place  during  that  period. 
But  in  all  these  numerous  and  varying  conditions  it  cannot 
be  discovered  by  the  most  careful  analysis  that  the  six  depres- 
sions occurred  in  any  one  of  these  five  nations  with,  or 


DEPRESSIONS     1833    TO    1887      159 

following,  any  one  of  these  conditions,  except  high  prices 
of  construction,  while  this  condition  preceded  each  one  of 
the  six  depressions  contemporaneously  in  all  of  the  five 
industrial  nations,  with  the  same  certainty  that  sunrise 
precedes  sunset. 


CHAPTER  XIV 

ANALYSIS    OF   THE    INDUSTRIAL    DEPRESSIONS    FROM 

1887  TO   1897 

THE  five  depressions  which  occurred  during  this  period 
were  each  the  result  of  an  external  malady.'  They 
were  caused  by  some  derangement  in  the  financial  system. 
The  industrial  system  was  entirely  free  from  any  internal 
malady  during  this  whole  period.  The  volume  of  the 
industries  declined  quickly  and  largely  when  each  of  these 
financial  disturbances  occurred,  and  commenced  to  revive 
rapidly  as  soon  as  they  were  alleviated  or  removed.* 

THE  DEPRESSION  CAUSED  BY  THE  PANIC  OF  1890 

The  year  1890  opened  under  highly  favorable  industrial 
conditions.  The  effect  of  the  depression  of  1882  to  1885 
had  passed  away.  The  business  of  the  country  had  ex- 
perienced four  years  of  recuperation  (1886  to  1889), 
during  which  the  consumption  of  iron  had  steadily  risen 
from  4,300,000  tons  in  the  year  1885  to  7,700,000  tons  in 
the  year  1889,  and  from  a  6,900,000  tons-per-annum  rate 
hi  September,  1889,  to  a  9,400,000  rate  in  March,  1890. 

*  In  reviewing  this  chapter,  and  those  which  come  after  it,  we  have  had 
the  advantage  of  statistics,  from  which  we  could  calculate  and  portray  on 
Appendix  Z  the  monthly  fluctuations  in  the  rate  of  production  and  con- 
sumption of  iron,  which  so  correctly  reflect  the  Quotations  in  construction. 
Such  statistics  for  earlier  years  are  unfortunately  not  attainable.  If  one 
would  appreciate  their  value,  compare  the  annual  production  and  con- 
sumption of  iron  in  1896  and  1897  with  the  annual  rate  of  monthly  pro- 
duction and  consumption  as  shown  in  Appendix  Z.  Had  such  statistics 
been  obtainable  for  1833  to  1887,  the  prompt  and  inexorable  effect  of  high 
and  low  prices  during  that  period  might  have  been  made  more  vivid.  As 
the  annual  rate  of  each  month's  production  is  given  from  1890  on,  we 
will  not  hereafter  refer  so  constantly  by  footnote  to  Appendices  L  and  Z, 
but  suggest  that  the  reader  refer  to  them  frequently,  as  they  give  a  vivid 
picture  of  the  changing  conditions. 

160 


DEPRESSIONS     1887    TO     1897      161 

A  financial  panic  occurred  in  Great  Britain  in  Novem- 
ber, 1890,  precipitated  by  the  Baring  troubles.  It  had  a 
severe  effect  upon  the  industries  of  the  United  States, 
reducing  them  more  than  35  per  cent,  within  five  months, 
as  evidenced  by  the  rate  of  iron  consumption,  which  fell 
from  a  9,200,000  tons-per-annum  rate  in  November,  1890, 
to  a  5,900,000  rate  in  April,  1891.  The  industries  them- 
selves, being  free  from  any  internal  depression  cause, 
commenced  to  recuperate  almost  immediately  after  panic 
conditions  ceased.  Within  two  months  the  consumption 
of  iron  had  risen  to  a  7,600,000  tons-per-annum  rate, 
four  months  later  had  fully  recovered,  reaching  the 
9,400,000  tons-per-annum  rate,  and  five  months  later  was 
larger  than  ever  before  in  the  history  of  the  country,  hav- 
ing risen  to  a  10,000,000  tons-per-annum  rate  in  March, 
1892. 

THE  DEPRESSION  CAUSED  BY  THE  PANIC  OF  1893 

In  June,  1893,  a  financial  panic  was  precipitated  in  the 
United  States  by  the  unfavorable  working  of  the  Silver 
Coinage  Law.  This  panic  paralyzed  everything  for  a 
time.  The  industries  fell  off  60  per  cent,  within  five 
months,  as  evidenced  by  the  rate  of  iron  consumption, 
which  fell  from  a  9,400,000  tons-per-annum  rate  to  a 
3,800,000  rate  within  five  months.  This  was  one  of  the 
most  severe  financial  disturbances  the  country  had  ex- 
perienced for  many  years.  It  necessitated  a  call  for  a 
special  session  of  Congress.  The  House  of  Representa- 
tives promptly  passed  a  bill  repealing  the  Silver  Coinage 
Law,  but  the  Senate's  bill  to  the  same  effect  was  not 
passed  until  October.  Immediately  after  the  passage 
of  the  bill,  the  industries  commenced  to  revive.  The 
consumption  of  iron  increased  from  a  3,800,000  tons- 
per-annum  rate  in  October,  1893,  to  a  6,500,000  tons- 
per-annum  rate  within  six  months,  thus  regaining  more 
than  half  the  loss  caused  by  the  panic,  at  which  juncture 
the  industries  were  again  affected  by  the  financial 
condition. 


162   INDUSTRIAL    DEPRESSIONS 

DEPRESSION   CAUSED    BY   FINANCIAL   DERANGEMENT 
OF   APRIL,    1894 

During  April,  1894,  it  became  apparent  that  the  repeal 
of  the  Silver  Coinage  Law  and  the  sale  of  United  States 
bonds  was  not  sufficient  to  protect  the  $100,000,000  gold 
reserve,  and  finances  were  again  disturbed.  Within  two 
months  a  decline  of  more  than  50  per  cent,  in  the  volume 
of  the  industries  had  taken  place,  iron  consumption  hav- 
ing fallen  from  a  6,500,000  tons-per-annum  rate  in  April, 
1894,  to  a  3,200,000  rate  hi  June,  1894.  At  this  juncture 
a  sale  of  bonds  replenished  the  gold  reserve.  'The  decline 
in  the  industries  was  more  than  recovered  within  the  next 
three  months.  Although  the  large  deficiency  in  the  gov- 
ernment revenues  continued,  and  the  legislation  which 
caused  the  frequent  depletion  of  the  gold  reserve,  popularly 
known  as  "The  Endless  Chain,"  remained  upon  the 
statute  books,  the  contending  causes  and  conditions  of 
prosperity  were  so  overwhelmingly  powerful  that  by  Sep- 
tember, 1895,  industrial  activity  was  greater  then  ever 
before  in  the  history  of  the  country,  iron  consumption 
having  reached  a  10,200,000  tons-per-annum  rate. 

DEPRESSION  CAUSED  BY  THE  "VENEZUELA  PROCLAMATION " 
OF   DECEMBER,  1895 

The  industrial  activity,  noted  in  the  last  paragraph, 
continued  to  increase  rapidly  until  December,  1895,  when 
iron  consumption  had  reached  an  11,200,000  tons-per- 
annum  rate,  at  which  period  the  President's  Venezuela 
message  was  sent  to  Congress,  and  another  panic  was 
precipitated  in  Wall  Street.  The  industries  fell  off  24  per 
cent,  in  seven  months.  Iron  consumption  fell  to  an 
8,500,000  tons-per-annum  rate. 

DEPRESSION   CAUSED   BY   THREATENED   ABOLITION   OF   THE 
GOLD    STANDARD    IN    JULY,    1896 

The  financial  system  had  not  recovered  from  this  last 
blow,  when  the  gold  standard  was  threatened  by  the 


DEPRESSIONS     1887    TO    1897      163 

presidential  campaign  of  1896.  Financial  affairs  were 
still  more  seriously  disturbed.  Gall  money  on  the  New 
York  Stock  Exchange  advanced  to  100  per  cent.,  and  the 
volume  of  industries,  already  depressed  in  July,  declined 
in  volume  29  per  cent,  within  two  months  after  the 
nominating  convention  which  threatened  the  gold  basis, 
iron  consumption  falling  to  a  6,000,000  tons-per-annum 
rate  in  September,  1896.  The  industries  revived  rapidly 
after  the  election  in  November,  1896,  regaining  their  last 
decline  within  two  months,  and  by  November,  1897,  were 
again  larger  than  ever  before  in  the  history  of  the  country, 
iron  consumption  reaching  an  11,600,000  tons-per-annum 
rate. 

REVIEW   OP   THE    FIVE    DEPRESSIONS    BETWEEN 
1890   AND  1897 

Here  we  have  five  cases,  November,  1890,  June,  1893, 
April,  1894,  December,  1895,  and  July,  1896,  each  showing 
unmistakably  all  the  conditions  necessary  to  class  them 
as  depressions  caused  by  external  derangements.  In 
each  of  these  cases  a  serious  financial  disturbance  caused 
an  immediate  and  enormous  depression  in  the  industries; 
in  each  case  the  external  cause  was  known  and  recognized, 
and  in  each  case  the  industries  revived  as  soon  as  the 
financial  disorder  was  alleviated  or  removed.  The  great 
increases  and  decreases  which  took  place  in  the  volume  of 
the  industries  during  this  period  are  correctly  reflected 
in  the  fluctuating  rate  of  iron  consumption  which  took 
place  during  the  different  months.*  Throughout  this 
entire  period  the  industries  were  not  only  free  from 
any  potent  depression  causes  within  themselves,  but  the 
incentive  of  abnormally  low  prices  for  construction 
materials  was  so  powerful  that  the  industries  bounded 
forward  rapidly  whenever  there  was  the  least  sign  that 
the  financial  trouble  was  over.f  The  turn  in  the  tide  which 
grew  to  the  boom  of  1899  occurred  while  the  unfavorable 
redemption  law,  popularly  known  as  "The  Endless 

*  See  Appendix  Z. 


164    INDUSTRIAL    DEPRESSIONS 

Chain,"  was  still  in  existence,  and  within  a  period  when 
the  Government's  annual  revenues  changed  from  $105,- 
000,000  surplus  to  $89,000,000  deficiency.  "The  Endless 
Chain"  brought  the  country  to  the  verge  of  bankruptcy, 
a  short  time  before,  but  counted  for  nothing  when  the 
elements  of  industrial  prosperity  obtained  the  mastery. 

STRUGGLE   BETWEEN   FAVORABLE   INDUSTRIAL  CONDITIONS 
AND   UNFAVORABLE    FINANCIAL   CONDITIONS 

Many  people  speak  of  this  period  as  the  panic  of  1893, 
while  others  more  correctly  speak  of  it  as  the  financial 
difficulties  of  1890  to  1896.  As  a  matter  of  fact,  this 
entire  period  was  a  struggle  between  favorable  industrial 
conditions  and  unfavorable  financial  conditions.  At  no 
tune  between  1889  and  1898  was  there  anything  within 
the  industries  themselves  to  prevent  their  revival  and  a 
subsequent  period  of  maximum  prosperity,  or  what  we 
call  a  boom.  The  depression  of  1882  had  spent  its  force, 
and  a  long  period  of  six  years  had  followed  during  which 
the  country  had  time  to  recuperate,  liquidate,  and  get 
into  a  settled  and  sound  condition.  Everything  indicated 
that  the  country  was  in  such  a  condition  during  the  greater 
part  of  the  year  1889.  The  consumption  of  iron  had  risen 
from  4,300,000  tons  in  1885  to  8,800,000  tons  in  1890.  A 
period  of  low  prices  had  occurred  in  1885  and  1886,  and 
again  in  1888  and  1889,  and  everything  in  the  industries 
was  promising,  when  the  panic  of  1890  occurred.  Previous 
to  this,  the  country,  having  passed  through  all  the 
conditions  of  convalescence  and  full  recovery,  was  not 
only  industrially  ready  for  a  revival  in  1889,  but  con- 
tinued industrially  ready  during  all  the  time  between 
1889  and  1899;  but  the  series  of  financial  disturbances 
checked  each  effort  until  towards  the  close  of  1896,  at 
which  time  the  industrial  conditions  finally  obtained  the 
mastery. 

That  the  depressions  hi  each  case  were  the  effect  of  the 
external  cause  was  clearly  shown  by  the  fact  that  the 
industries  declined  largely  and  quickly  after  each  panic, 


DEPRESSIONS     1887    TO     1897      165 

and  revived  largely  and  quickly  as  soon  as  panic  effects 
abated  or  disappeared.* 

The  most  severe  financial  panics  are  disorders  which 
last  but  a  few  months  at  most,  often  but  a  few  weeks  or 
days,  sometimes  but  a  few  hours.  Notably,  the  panic  of 
May  9,  1901,  when  one  of  the  most  astonishing  panics 
in  history  commenced  on  the  New  York  Stock  Exchange, 
reached  its  height,  and  ended  within  five  hours.  It  is 
impossible  for  a  financial  panic,  no  matter  how  severe, 
to  cause  a  prolonged  industrial  depression  when  the 
conditions  which  produce  industrial  depressions  do  not 
themselves  exist.  A  severe  financial  panic  may  bring  a 
severe  temporary  check  to  the  industries,  as  shown  in 
above  cited  cases,  but  such  checks  will  be  short-lived. 

*  See  Appendix  Z. 


CHAPTER  XV 

ANALYSIS   OF    THE    INDUSTRIAL    DEPEESSIONS     FROM 

1897   TO    1908 

THE  three  periods  of  recovery,  boom,  and  decline  in 
the  industries,  during  the  above  twelve  years, 
present  a  vivid  and  instructive  object  lesson.  The  fact 
that  the  first  period  was  not  accompanied  by  any  financial 
disturbance,  while  the  last  one  was,  gives  another  illus- 
tration of  how  soon  the  public  forgets  depressions  which 
are  not  accentuated  by  a  panic.  The  sequence  of  perti- 
nent events  which  followed  the  three  advances  in  prices 
and  the  three  declines  in  prices,  in  this  twelve-year  period, 
were  substantially  the  same  as  in  the  six  periods  de- 
scribed in  Chapter  XIII.  This  being  the  case,  a  detailed 
description  of  one  will  be  sufficient  to  give  a  clear  idea  of 
all  of  them.  We  shall,  therefore,  describe  in  detail  the 
one  from  1897  to  1900.*  The  decline  in  the  industries 
in  1907  was  unquestionably  precipitated  by  the  panic  in 
October,  as  construction  was  at  its  height  when  the  panic 
occurred;  but  the  microbe  of  depression  had  already 

*  On  referring  to  Appendix  E,  it  will  be  observed  that  the  average  price 
of  the  four  principal  grades  of  iron  in  five  of  the  chief  iron  markets  of  the 
country  in  July,  1897,  was  $9  per  ton,  and  on  referring  to  Appendix  Z  it 
will  be  observed  that  this  was  the  lowest  average  price  reached  in  this 
country  during  the  nineteenth  century.  For  the  purpose  of  conveying 
a  clearer  impression  of  the  changes  in  prices,  this  lowest  price  will  here- 
after, be  spoken  of  in  this  book  as  zero,  and  the  fluctuations  in  prices 
as  such  and  such  a  percentage  above  zero.  For  the  purpose  of  conveying 
a  clearer  impression  of  the  changes  in  production  and  consumption,  the 
volume  of  each  will  be  spoken  of,  not  as  so  much  per  week  or  so  much  per 
month,  but  as  the  per  annum  rate  of  each  month.  For  instance,  the  weekly 
production  of  iron  during  January,  1896,  was  203,946  tons,  equivalent  to 
an  annual  production  of  10,605,192  tons;  therefore,  the  production  of  iron 
In  January,  1896,  will  be  spoken  of  as  at  "a  10,600,000  tons-per-annum 

166 


DEPRESSIONS     1897    TO     1908      167 

done  its  fatal  work  during  the  high-priced  period  in  1906, 
and  the  disease  would  have  broken  out  upon  the  surface 
in  1908  even  if  there  had  been  no  panic.  This  will  be 
fully  demonstrated  later  on  in  this  book. 

THE    REVIVAL,    BOOM,    AND    DECLINE,    FROM    1897    TO    1900. 
THE   REVIVAL   IN    1898  AND   1899 

The  years  1897  and  1898  constituted  a  low-priced 
period.*  In  January,  1897,  pig-iron  was  13  per  cent, 
above  zero.  In  July  it  was  at  zero,  and  in  December, 
1898,  it  was  11  per  cent,  above  zero.  The  average  price 
for  the  twenty-four  months  was  but  8  per  cent,  above 
zero.  The  visible  revival  of  the  industries  from  October, 
1896,  to  May,  1897,  although  rapid  and  large,  was  not 
more  in  amount  than  a  natural  recovery  from  the  disas- 
trous effect  of  the  threatened  overthrow  of  the  gold  basis 
hi  the  summer  of  1896.f  Those  who  watched  conditions 
closely,  however,  knew  that  future-delivery  contracts  for 
structural  materials  had  increased  enormously,  before  the 
zero  point  was  reached  in  July,  1897,  that  stocks  of  con- 
struction materials,  particularly  of  iron,  had  been  de- 
creasing since  April,  and  that  iron  prices  commenced  to 
advance  in  the  West  and  South  in  August. 

The  far-seeing  ones,  referred  to  on  page  128,  were 
making  large  contracts  for  investment  construction  as 
early  as  the  first  half  of  1897,  and  it  was  this  investment 
construction  which  carried  the  consumption  of  iron  up 
to  a  12,000,000  tons-per-annum  rate  during  the  latter 
half  of  that  year.  This  exceeded  anything  the  country 
had  ever  experienced,  but  the  movement  did  not  halt 

rate."  Monthly  consumption  will  be  spoken  of  in  the  same  manner. 
The  stock  of  iron  on  hand,  when  mentioned,  will  be  the  total  of  the  stocks 
in  yards  of  the  furnace  companies  and  in  the  yards  of  the  Warrant  Com- 
pany. The  statistics  of  production,  consumption,  and  prices  of  iron  used 
in  preparing  Appendices  L  and  Z  are  from  the  Annual  Reports  of  the 
American  Iron  &  Steel  Association  of  Philadelphia;  the  Monthly  Reports 
of  the  Western  Pig  Iron  Association  of  Pittsburg;  the  Annual  Reports  of 
the  Cincinnati  Chamber  of  Commerce,  and  the  weekly  issues  of  "The 
Iron  Age"  of  New  York. 

*  See  Appendix  Z.  t  Ibid. 


168    INDUSTRIAL    DEPRESSIONS 

here.  The  low-priced  period  continued  all  through  the 
year  1898;  as  long  as  the  low  prices  continued  the  con- 
tracts for  important  investment  construction  continued, 
and  by  the  end  of  1899  the  consumption  of  iron  had  risen 
to  a  15,800,000  tons-per-annum  rate. 

That  this  was  chiefly  new  construction  is  evident  from 
the  fact  that  it  raised  the  capacity  of  the  country  to  a 
new  and  higher  plane.  That  it  was  chiefly  contracts  for 
large  enterprises  is  evident  from  the  fact  that  during  these 
few  months  it  brought  into  existence  factories,  mills,  etc., 
which  raised  the  country  from  a  plane  of  industrial  pro- 
duction which  consumed  9,000,000  tons  of  iron  per  annum 
to  a  plane  which  consumed  13,000,000  tons.  There  are 
no  statistics  gathered  from  which  we  can  determine 
precisely  when  the  contracts  were  signed  for  this  large 
volume  of  extra  construction,  but  we  know  that  the  work 
in  producing  it  was  practically  finished  by  April,  1900, 
from  the  fact  that  iron  consumption  fell  from  a  15,800,000 
tons-per-annum  rate  to  a  10,800,000  tons-per-annum 
rate  within  four  months  from  that  time.  Now,  if  the 
average  time  which  elapsed  between  the  signing  of  the 
contracts  for  this  construction  and  the  actual  completion 
of  the  construction  was  as  much  as  fifteen  months — and 
the  table  on  page  114  as  well  as  Appendix  L  indicate  that 
it  was  even  more  than  this — then  the  contracts  must  have 
been  made  before  the  end  of  1898,  and  before  iron  advanced 
as  much  as  10  per  cent,  above  zero.  Is  it  not  evident, 
therefore,  that  the  contracts  for  investment  construction 
were  substantially  checked  soon  after  the  opening  of 
1899?  The  current  necessity  construction  with  ordinary 
repairs  and  replacements,  much  of  which  is  made  from 
week  to  week  and  without  written  contracts,  was  amply 
sufficient  to  account  for  all  the  materials  that  were  sold 
at  the  higher  prices. 

These  are  the  conditions  which  explain  why  the  manu- 
facturers of  iron  and  other  construction  materials  realized, 
during  this  industrial  boom,  so  small  an  advance  on  the 
materials  they  manufactured  and  delivered,  notwith- 


DEPRESSIONS     1897    TO     1908     169 

standing  the  price  of  iron  was  advancing  rapidly  all  the 
way  from  zero  to  147  per  cent,  above  zero.* 

THE  SPECTACULAR  ADVANCE  IN  THE  PRICE  OF  IRON  IN  1899 

It  was  the  large  volume  of  investment  construction 
thus  put  under  contract  so  gradually  and  quietly  that  no 
one  realized  its  magnitude,  which  finally  swelled  the 
demand  for  construction  materials  so  far  beyond  the 
capacity  of  the  country  to  supply,  and  which  ultimately 
carried  prices  to  such  abnormally  high  figures.  Previous 
to  this  period,  the  largest  year's  production  was  9,600,000 
tons.  In  May,  1897,  the  furnaces  of  the  country  were 
producing  it  at  a  9,100,000  tons-per-annum  rate  and  had 
on  hand  1,102,000  tons.  This  with  the  216,000  tons  in 
the  storage  yards  of  the  Warrant  Company  amounted  to 
a  visible  stock  of  1,318,000  tons.  This  was  the  largest 
ever  accumulated  hi  the  United  States  up  to  this  date. 
In  December,  1898,  production  was  at  a  13,000,000  tons- 
per-annum  rate  and  there  was  still  a  surplus  stock  of 
705,000  tons.  Evidently  no  one  yet  realized  the  large 
amount  of  construction  which  was  under  contract,  for 
prices  were  still  but  11  per  cent,  above  zero.  After  this 
date,  however,  the  demand  for  materials  to  supply  actual 
construction  increased  so  enormously  that  within  four 
months  the  surplus  stock  was  down  to  less  than  seven 
days'  production.  Iron  advanced  to  16  per  cent,  above 
zero,  in  January;  to  27  per  cent,  above,  hi  February;  to 
52  per  cent,  above,  in  March;  to  99  per  cent,  above,  in 
July,  and  to  147  per  cent,  above,  in  December. 

THE  BOOM  IN   1899 

During  this  period  of  advancing  prices,  practically  every 
old  furnace  stack  that  could  be  repaired  was  put  in  blast. 
Iron  production  was  increased  to  a  15,800,000  tons-per- 
annum  rate  by  November,  and  the  iron  stocks  were  prac- 
tically exhausted.  Old  cast  and  wrought  scrap  iron, 
which  had  for  years  collected  in  out-of-the-way  places, 

*  See  Chapter  XI  and  particularly  pages  118  and  119. 


170    INDUSTRIAL    DEPRESSIONS 

where  in  depressed  times  it  did  not  pay  to  collect  and 
transport  it,  was  gathered  up,  transported,  and  consumed, 
to  the  extent  of  hundreds  of  thousands  of  tons.  Almost 
anything  asked  for  iron  which  could  be  delivered  promptly 
was  accepted.  High  as  the  quotations  were  for  iron, 
large  premiums  above  quotations  were  paid  for  any  that 
could  be  delivered  immediately. 

The  boom  was  at  its  height,  and  the  indications  of  its 
continuance  were  most  pronounced  just  before  the  down- 
turn. People  who  had  waited  twelve  months  to  get 
products  which  were  promised  in  six,  or  who  had  waited 
two  years  and  sometimes  longer  to  get  possession  of 
houses,  stores,  factories,  etc.,  which  were  contracted  to 
be  completed  in  one  year,  were  frantic  to  get  possession 
of  them.  Builders  were  urging  manufacturers  for  products, 
and  manufacturers  were  urging  producers  of  raw  materials, 
who  in  turn  were  behind  with  them.  Very  little  work  of 
magnitude  was  completed  on  time.  It  was  simply  impos- 
sible to  procure  labor  and  materials  to  accomplish  it. 

All  through  the  last  half  of  1899  and  the  first  quarter 
of  1900,  the  demand  for  labor  and  materials  was  intense. 
Money  was  actually  paid  to  corrupt  labor  leaders  to  call 
a  strike  on  one  job  and  turn  the  workers  upon  the  job  of 
the  party  who  paid  the  money.  People  hooted  at  the 
prediction  that  high  prices  would  stop  this  prosperity. 
If  high  prices  could  stop  prosperity,  they  said,  it  would 
have  been  stopped  long  ago.  "Had  not  all  branches  of 
actual  business  increased  as  prices  had  increased?" 

All  this  time  the  volume  of  unfinished  work  on  the 
existing  contracts  for  investment  construction  was  grow- 
ing less  and  less.  Not  so  with  actual  construction,  which 
up  to  November,  1899,  absorbed  everything  which  could 
be  produced. 

THE   DECLINE   IN    1900 

All  through  the  high-priced  period  of  1899,  the  microbe 
of  industrial  depression  was  doing  its  deadly  work. 
When  the  year  1900  opened,  the  disease  permeated  the 


DEPRESSIONS     1897    TO     1908      171 

whole  foundation  of  the  industrial  system;  it  only  re- 
mained to  eat  its  way  through  and  break  out  upon  the 
surface.  All  through  the  last  three  quarters  of  1899, 
when  bids  were  handed  in  on  the  plans  and  specifications 
for  the  immense  amount  of  construction  contemplated, 
the  prices  asked  were  so  enormously  above  what  the 
same  work  would  have  cost  hi  1897  and  1898,  that  one 
after  another  of  the  purse-string  holders  decided  not  to 
make  contracts  for  anything  but  necessary  construction 
until  prices  dropped  back  to  normal  figures. 

DISEASE   BREAKS   OUT  UPON   THE   SURFACE   IN    1900 

By  May  the  disease  commenced  to  break  out  upon  the 
surface  and  soon  became  startlingly  visible.  Contractors 
who  had  bought  materials  for  months  ahead  had  little 
or  no  work  to  put  them  into;  construction  materials  com- 
menced to  accumulate  upon  every  side;  consumption  of 
iron  fell  from  a  15,000,000  tons-per-annum  rate  in  April 
to  a  10,800,000  tons-per-annum  rate  in  August.  Sixty- 
two  furnaces  went  out  of  blast  in  June  and  July,  and 
forty  more  by  the  end  of  October;  yet  even  with  this 
large  curtailment  in  production,  780,000  tons  of  iron  had 
accumulated  by  October,  and  contracting  for  new  con- 
struction, outside  of  actual  necessities,  was  almost  at  a 
standstill. 

It  was  these  simple  individual  acts  of  the  far-seeing 
investors  which  were  quietly  taking  place  during  1899, 
unnoticed  and  unheralded,  that  turned  the  tide  of  visible 
prosperity  in  May,  1900.  This  falling  off  in  the  making 
of  new  contracts  took  place  so  gradually  and  quietly  that 
contracts  had  almost  ceased  being  made,  months  before 
the  country  realized  it.  The  sufferers  looked  for  the 
cause  in  every  place  but  the  right  one,  probably  because 
the  right  one  was  too  simple,  too  commonplace,  and  was 
present  so  long  before  its  effect  was  visible  that  it  was 
not  recognized  and  identified.  Human  nature  demanded 
some  great  or  mysterious  cause  for  so  great  and  mysteri- 
ous a  change. 


172    INDUSTRIAL    DEPRESSIONS 

There  was  nothing  new  in  this  falling  off  in  contracting 
during  the  height  of  prosperity,  nor  hi  this  mysterious 
falling  off  in  actual  construction  about  thirteen  months 
afterward.  Eight  times  in  the  last  eighty  years  the  same 
thing  has  happened,  and  always  from  the  same  cause, 
yet  the  public  has  each  time  failed  to  realize  the  falling 
off  in  contracting  when  it  occurred,  or  to  suspect  the  real 
cause  of  the  falling  off  in  actual  construction  when  that 
occurred. 

Will  any  one  question  the  assertion  that  this  great 
check  to  investment  construction  was  on  account  of  high 
prices?  Business  anticipations  were  at  the  highest  point; 
money  was  in  the  greatest  abundance;  the  total  amount 
in  circulation,  the  amount  per  capita,  the  total  deposits, 
the  total  cash  in  banks,  and  the  loans  and  discounts  had 
never  been  so  great.  Crops  were  tremendous.*  There 
was  not  a  cloud  on  the  horizon.  The  demand  upon  archi- 
tects for  plans  and  specifications  for  new  construction 
work  was  greater  than  they  could  possibly  supply,  not- 
withstanding the  fact  that  their  office  forces  had  been 
largely  augmented.  In  all  our  search  during  the  first 
part  of  1900  we  were  able  to  find  but  one  man  who  did 
not  expect  a  continuance  of  the  tremendous  rate  of  con- 
struction throughout  the  entire  year  of  1900,  yet  in  the 
face  of  all  these  favourable  conditions,  and  in  the  total 
absence  of  any  recognized  unfavorable  condition,  the 
industries  suddenly  fell  off  in  the  summer  of  1900  to  an 
extent  that  carried  iron  consumption  down  from  a  15,- 
000,000  tons-per-annum  rate  to  a  10,800,000  tons-per- 
annum  rate.  This  was  substantially  from  a  boom  to  a 
depression  basis. 

The  whole  course  of  events  was  perfectly  simple.  The 
extraordinary  amount  of  investment  construction  con- 
tracted for  in  the  low-priced  period,  which  terminated 
about  June,  1899,  kept  the  business  of  the  country  up  to 
its  maximum  capacity  until  about  July,  1900,  at  which 

*  Comparative  data  in  this  paragraph  taken  from  the  United  States 
Statistical  Abstract  of  1908. 


DEPRESSIONS     1897    TO     1908      173 

time  the  delayed  investment  construction  was  substan- 
tially completed,  and  the  volume  of  actual  construction 
dropped  back  to  a  depression  basis.* 

It  is  hardly  likely  that  any  generation  will  furnish  a 
more  vivid  illustration  of  the  effect  of  prices  upon  con- 
struction, and  the  effect  of  construction  upon  general 
prosperity,  than  was  crowded  into  the  four-year  period 
between  the  beginning  of  1897  and  the  end  of  1900.  If 
any  reader  doubts  the  power  of  prices  over  the  volume 
of  construction,  let  him  examine  carefully  Appendix  L 
in  connection  with  the  table  on  page  114.  The  interpre- 
tation we  put  upon  this  showing  is:  that  the  contracts 
for  construction,  made  chiefly  in  1897  and  1898,  so  greatly 
exceeded  the  capacity  of  the  country  to  execute  that  it 
carried  prices  up  to  147  per  cent,  above  zero  by  December, 
1899;  that  the  making  of  such  contracts  for  purely  in- 
vestment purposes  was  checked  by  these  high  prices,  and 
had  about  ceased  in  June,  1899,  but  that  the  volume 
already  made  was  so  far  in  excess  of  the  country's  capacity 
to  execute  that  it  required  thirteen  months  after  that 
date  to  complete  them.  Immediately  after  this  the  vol- 
ume of  construction  dropped  to  a  necessity  basis,  until  it 
was  again  increased  by  low  prices. 

THE   REVIVAL,    BOOM,    AND   DECLINE    FROM    1901   TO   1903 

During  the  decline  in  the  industries  in  1900,  the  price 
of  iron  fell  within  four  months  from  139  per  cent,  above 
zero  to  86  per  cent,  above,  and  in  September,  one  month 
later,  to  52  per  cent,  above.  The  whole  decline  of  the 
period  was  from  147  per  cent,  above  zero  to  46  per  cent, 
above. 

This  sudden  and  great  fall  in  prices  changed  the  whole 
industrial  aspect  as  if  by  magic.  Consumption  revived 
immediately,  and  by  March,  1901,  had  not  only  fully 
recovered,  but  was  greater  than  ever  before.f  The  re- 
covery was  much  quicker  than  in  any  previous  revival 
in  the  nation's  history.  A  great  many  individuals,  firms, 
*  See  Appendix  L,  and  Table,  page  114.  f  See  Diagram  L. 


174   INDUSTRIAL    DEPRESSIONS 

and  corporations  all  over  the  country  had  plans  and  speci- 
fications of  constructive  work  which  had  been  prepared 
for  them  in  1899  and  1900,  and  which  they  had  aban- 
doned or  postponed  on  account  of  the  high  prices  then 
asked.  Between  these  people  and  the  building  contract- 
ors, who  had  made  the  bids  which  had  been  declined, 
there  were  naturally  negotiations  and  many  efforts  made 
by  the  contractors  to  get  these  enterprises  revived,  and 
most  of  them  were  revived  during  the  low-priced  period 
of  1901. 

ILLUSTRATION 

In  the  case  of  a  little  community  in  which  the  writer 
spent  much  time  at  this  period  and  took  the  opportunity 
to  investigate,  there  were  twenty-three  residences  erected 
from  1898  to  1900,  all  contracted  for  during  the  low- 
priced  period  of  1897  to  1898.  In  the  high-priced  period, 
from  1899  to  the  first  half  of  1900,  plans  had  been  pre- 
pared and  bids  made  on  sixteen  additional  residences, 
all  of  which  were  declined  solely  on  account  of  the  high 
prices.  In  the  latter  part  of  1900  and  in  1901,  after 
prices  had  dropped,  these  sixteen  residences  were  put 
under  contract  and  built  in  1901  to  1903.  This  is  a  typi- 
cal picture  of  what  was  going  on  all  over  the  country  at 
this  time. 

It  was  the  high  prices  of  construction  in  1899  and  the 
first  part  of  1900  which  stopped  the  building  of  these 
sixteen  residences.  It  was  the  low  prices  of  construction 
in  the  last  part  of  1900  and  1901  which  caused  the  owners 
to  put  the  work  under  contract. 

The  great  construction  of  1901  and  1902  and  the 
spring  of  1903  would  not  have  taken  place  but  for  the 
great  fall  in  prices  in  1900. 

SEQUENCE   OF  EVENTS 

It  is  not  necessary  to  repeat  here  in  detail  the  sequence 
of  events  which  attended  the  revival,  boom,  and  decline 
hi  the  industries  between  the  autumn  of  1900  and  the 
autumn  of  1903.  In  all  then*  main  features  they  were 


DEPRESSIONS     1897    TO     1908      175 

the  same  as  between  the  summer  of  1897  and  the  summer 
of  1900,  which  have  just  been  described  in  detail. 

First  came  the  low-priced  period,  then  the  great  in- 
crease in  construction  contracts,  then  the  great  increase 
in  demand  for  labor  and  materials,  then  the  short  supply 
of  both  and  the  spectacular  advance  in  the  price  of  iron, 
followed  by  all  other  construction  materials;  then  the 
quiet  and  unnoticed  falling  off  in  contracts  for  investment 
construction;  then  the  height  of  visible  prosperity,  money 
in  abundance,  intense  demand  for  everything  in  the  shape 
of  construction  materials  which  could  be  produced,  and 
unbounded  confidence  in  the  future;  then  the  high  pre- 
miums for  articles  which  could  be  delivered  immediately, 
in  the  face  of  a  decline  in  prices  for  future  delivery;  then 
the  completion  of  the  low-priced  contracts,  followed  by 
the  sudden  decline  in  volume  of  construction. 

In  the  period  under  consideration,  prices  of  iron  ad- 
vanced from  October,  1901,  to  October,  1902,  from  54 
per  cent,  above  zero  to  165  per  cent,  above  zero.  When 
the  contracts  for  investment  construction  which  were 
made  during  the  low-priced  period  were  completed,  the 
consumption  of  iron  dropped  from  a  20,200,000  tons-per- 
annum  rate  in  June,  1903,  to  a  10,100,000  tons-per-annum 
rate  within  six  months. 

TWO   OBJECT   LESSONS 

Here  we  have  within  six  years  two  remarkable  object 
lessons.  During  this  period,  there  was  no  financial  panic 
or  other  external  event  of  sufficient  importance  to  bring 
any  check  to  the  constructive  industries.  On  the  con- 
trary, both  of  these  checks  commenced  when  the  people 
saw  nothing  but  bright  prospects  ahead  and  were  pre- 
dicting a  continuance  of  maximum  prosperity.  There 
was  absolutely  nothing  outside  of  the  industries  to  give 
warning  of  these  two  sudden  declines  in  the  volume  of 
the  industries.  The  internal  cause,  on  the  other  hand, 
was  distinct  and  prominent,  and  the  effects  were  direct 
and  emphatic.  When  the  demand  for  delivery  of  mate- 


176    INDUSTRIAL    DEPRESSIONS 

rials  exceeded  the  supply,  prices  advanced  enormously. 
When  prices  advanced,  contracts  for  construction  fell 
off  largely.  When  the  volume  of  unfinished  work  on 
contracts  grew  alarmingly  small,  prices  for  future  delivery 
of  materials  commenced  to  decline.  When  the  extra 
volume  of  construction  was  completed,  actual  construc- 
tion fell  enormously.  Then  followed  the  flood  of  alleged 
causes,  which  included  almost  everything  but  the  real 
cause. 

THE   REVIVAL,    BOOM,    AND    DECLINE    FROM   1904  TO   1907 

The  revival,  boom,  and  decline  which  took  place  within 
the  four  years  from  1904  to  1907  made  up  a  period  which 
was  so  different  in  some  ways  from  the  two  periods  just 
preceding  it,  or  in  fact  from  any  former  period,  that  it 
cannot  be  passed  over  by  simply  referring  to  it  as  a  repe- 
tition of  any  previous  period.  The  United  States  had 
but  recently  made  great  strides  in  the  accumulation  of 
wealth,  which  had  increased  from  eighty-eight  and  one 
half  billions  in  1900  to  one  hundred  and  seven  billions  in 
1904.  This  was  an  increase  of  eighteen  and  one  half 
billions  in  four  years,  which,  in  amount,  was  greater  than 
the  entire  accumulated  wealth  of  the  country  in  1860, 
which  was  but  sixteen  and  one  sixth  billions.  The  bank 
deposits  of  the  country  had  increased  in  this  four  years 
from  seven  billions  to  ten  billions,  as  against  five  billions 
in  1897.* 

The  country  had  never  before  faced  such  conditions. 
The  revival  which  followed  was  not  like  a  revival  after  a 
financial  panic,  nor  like  a  revival  after  many  years  of 
depression.  It  was  a  revival  after  two  nearby  booms,  in 
which  the  increase  in  business  and  wealth  had  been 
unprecedented  in  this  country,  or  in  any  other  country, 
and  it  developed  features  which  were  peculiar  to  itself. 
The  two  recent  booms  had  both  been  brought  to  a  sudden 
end,  not  by  financial  panics,  nor  any  other  great  external 
calamity,  nor  by  any  aggregation  of  small  contributory 

*  Statistical  Abstract  of  the  United  States. 


DEPRESSIONS    1897    TO    1908      177 

causes,  but  solely  by  the  abnormally  high  prices  of  con- 
struction. Whenever  this  cause  has  existed  in  any  of 
the  industrial  nations  during  the  last  century,  it  has  in 
due  time  and  with  inexorable  certainty  brought  a  sudden 
check  to  the  industries  of  that  nation.  After  each  of  the 
two  booms  referred  to,  the  abnormally  high  prices  dropped 
quickly,  and  the  industries  revived  quickly,  showing 
plainly  that  the  declines  in  the  volume  of  the  industries 
had  not  been  caused  by  an  external  disorder,  and  pointing 
clearly  to  what  the  internal  disorder  was. 

There  was  absolutely  nothing  to  cause  these  two  sudden 
checks  to  the  industries  of  the  nation  in  1900  and  1903. 
except  the  abnormally  high  prices  of  construction.  That 
was  all  that  was  necessary  to  bring  the  depressions  about. 
That  was  the  one  cause,  and,  when  prices  dropped  at  the 
beginning  of  1904,  the  one  cause  which  checked  and  held 
back  the  vigorous  growth  of  the  nation's  business  was 
removed,  and  immediately  the  industries  again  bounded 
forward. 

THE  REVIVAL 

By  referring  to  Appendix  L,  it  will  be  observed  that 
during  the  last  boom  actual  construction  increased  in 
volume  up  to  June,  1903,  but  that  prices  commenced  to 
fall  in  October,  1902,  eight  months  before.  Between  the 
last-named  date  and  November,  1903,  prices  had  fallen 
from  163  per  cent,  above  zero  to  49  per  cent,  above  zero. 
Following  this  there  was  a  period  of  eleven  months 
(November,  1903,  to  October,  1904)  during  which  prices 
of  iron  held  between  49  per  cent,  above  zero  and  42  per 
cent,  above.  This  constituted  a  period  of  low  prices. 
The  country  so  recognized  it,  and  during  this  period  the 
architects,  designers,  and  engineers  of  the  country  were 
flooded  with  work.  What  they  had  experienced  in  the 
low-priced  periods  of  1898  and  1901  was  small  in  com- 
parison. At  no  time  in  the  country's  history  had  so 
many  great  enterprises  been  projected.  The  volume  of 
contracts  for  new  construction  during  this  eleven  months 


178    INDUSTRIAL    DEPRESSIONS 

was  not  only  greater  than  ever  before,  but  greater  than 
the  public  had  any  conception  of  at  the  time.  It  was 
greater,  because  the  wealth  and  available  capital  were 
greater.  The  magnitude  of  the  volume  of  construction 
contracted  for  was  reflected  in  the  vastness  of  many  of 
the  new  enterprises.  Some  of  them  required  many 
months  in  which  to  complete  the  plans  and  specifications, 
and  many  more  months  in  which  to  do  the  preliminary 
work,  before  delivery  of  materials  commenced  to  be 
required  for  their  erection.  Some  of  them  did  not  require 
delivery  of  the  majority  of  materials  until  1905  and  1906, 
and  even  as  late  as  1907. 

During  the  high-priced  period  of  1902  and  1903,  many 
plans  and  specifications  for  new  construction  had  been 
made  which  were  held  back  or  abandoned  at  that  time 
on  account  of  the  abnormally  high  prices.  Many  of  these 
projects  were  revived  and  put  under  contract  late  in  1903, 
after  prices  had  fallen,  and  work  was  commenced  upon 
them  at  the  beginning  of  1904.  This  started  work  on  an 
unusually  large  number  of  contracts  within  an  unusually 
short  time.  The  volume  of  demand  for  materials  for  the 
smaller  contracts  swelled  the  early  demand  enormously, 
and  consumption  of  iron  increased  from  an  11,400,000 
tons-per-annum  rate  in  January,  1904,  to  a  19,500,000 
tons-per-annum  rate  in  April;  then,  within  three  months, 
consumption  dropped  back  to  a  12,900,000  tons-per- 
annum  rate  (see  Appendices  L  and  Z).  During  all 
this  time  the  projectors  of  the  larger  enterprises  were 
maturing  their  plans,  making  contracts  for  construction, 
and  excavating  for  huge  structures,  etc.,  but  the  demand 
for  delivery  of  materials  for  these  greater  enterprises  did 
not  meet  expectations.  This  was  because  of  the  long 
time  it  required  to  complete  the  plans  and  do  the  pre- 
liminary work.  Of  this  class  of  enterprise,  the  new 
Pennsylvania  Railroad  Terminal  hi  New  York  City  is  a 
notable  example. 

The  public  did  not  understand  the  tremendous  con- 
tracting for  new  construction  and  the  large  falling  off  in 


DEPRESSIONS     1897    TO     1908      179 

actual  construction  which  took  place  in  the  summer  of 
1904  (see  diagram,  Appendix  L).  The  demand  for  ma- 
terials was  very  satisfactory  during  the  first  quarter  of 
1904,  but  not  so  satisfactory  during  the  second  quarter. 
By  August  the  demand  for  labor  and  materials  commenced 
to  grow.  The  consumption  of  iron  increased  to  a  14,- 
100,000  tons-per-annum  rate  during  that  month.  By 
April,  1905,  it  had  increased  to  a  23,500,000  tons-per- 
annum  rate.  The  price  of  iron  advanced  to  80  per  cent, 
above  zero,  and  the  next  month  consumption  commenced 
to  fall  off.  By  July  it  was  down  to  a  20,000,000  tons- 
per-annum  rate.  Prices  dropped  to  61  per  cent,  above 
zero,  and  by  December,  1905,  consumption  had  risen  to 
a  25,000,000  tons-per-annum  rate  (estimated),*  and  the 
prices  to  93  per  cent,  above  zero.  By  August,  1906, 
consumption  was  down  to  a  22,700,000  tons-per-annum 
rate  (estimated),  and  prices  were  92  per  cent,  above  zero 
and  advancing.  From  this  date,  both  consumption  and 
prices  advanced  until  May,  1907,  when  consumption 
was  at  a  27,000,000  tons-per-annum  rate  (estimated),  and 
prices  173  per  cent,  above  zero.  When  the  panic  came 
in  October,  consumption  was  at  a  27,500,000  tons-per- 
annum  rate  (estimated),  and  prices  had  dropped  to  128 
per  cent,  above  zero. 

*  As  will  be  noticed,  all  rates  of  consumption  after  November,  1905,  are 
given  as  estimated.  This  is  because  statistics  covering  stocks  of  iron  and 
consumption  of  iron  ceased  to  be  made  public  at  that  time.  The  Ameri- 
can Iron  &  Steel  Association  ceased  publishing  stocks  at  the  end  of  1904, 
the  cessation  being  explained  by  the  following  paragraph,  which  appeared 
in  their  annual  Statistical  Report  for  1905: 

"By  request  of  leading  manufacturers  of  pig  iron,  we  have  this  year 
omitted,  for  the  first  time  in  more  than  thirty  years,  the  collection  of  the 
statistics  of  unsold  stocks  of  pig  iron." 

The  Western  Pig  Iron  Association  continued  to  publish  stocks  until 
November,  1905,  after  which  that  association  ceased  publishing.  "The  Iron 
Age"  also  ceased  publishing  them  about  that  time;  the  two  authorities 
last  named,  in  answer  to  inquiries,  explained  their  action  by  saying,  in  sub- 
stance, that  so  many  producers  had  refused  to  continue  to  furnish  statistics 
of  stocks  on  hand,  that  they  found  it  impossible  to  gather  the  necessary 
information.  All  these  parties  continue  to  give  the  production;  but  with- 
out a  record  of  the  increases  and  decreases  in  stock  it  is  impossible  to  arrive 
at  the  rate  of  consumption. 


180    INDUSTRIAL    DEPRESSIONS 

From  the  above,  or  more  clearly  from  diagram,  Appen- 
dix L,  it  will  be  seen  that  the  advance  in  prices  during  the 
last  quarter  of  1904  was  followed  by  a  falling  off  in  con- 
sumption in  the  second  quarter  of  1905,  and  that  the 
advance  in  prices  in  the  last  quarter  of  1905  was  followed 
by  a  falling  off  in  consumption  in  the  second  quarter  of 
1906.  This  was  while  there  were  still  some  reserve  stocks 
on  hand,  and  before  the  heavy  demand  for  materials  for 
the  large  enterprises  referred  to  on  page  178  had  out- 
stripped the  capacity  of  the  country  to  supply;  but  after 
the  reserve  stocks  were  practically  exhausted,  prices  ad- 
vanced rapidly,  and  by  December,  1906,  they  had  reached 
172  per  cent,  above  zero,  in  which  neighborhood  they 
remained  until  May,  1907. 

THE  BOOM 

With  every  large  increase  in  investment  construction 
comes  a  large  increase  in  necessity  construction.  The 
increase  in  necessity  construction  does  not  lead,  but  it 
follows  surely.  When  the  abnormal  demand  for  delivery 
of  the  materials  contracted  for  to  erect  the  investment 
construction  comes,  with  its  resultant  high  prices,  it 
stimulates  the  increase  of  capacity  to  produce  these 
materials.  This  brings  about  the  building  of  new  fac- 
tories, furnaces,  mills,  etc.,  as  well  as  the  enlargement  of 
old  ones.  This  increases  the  contracts  for  necessity  con- 
struction, even  in  the  face  of  high  prices  and  a  falling  off 
in  investment  construction.  High  prices  do  not  have  as 
much  influence  on  necessity  construction  as  they  do  on 
investment,  for  the  former  must  be  carried  forward 
whether  prices  are  high  or  low.  The  demand  for  mate- 
rials for  necessity  construction  grows  and  feeds  upon  itself 
when  it  comes,  and  may  be  even  larger  in  volume 
than  investment  construction  for  a  time,  but  it  is  of 
shorter  duration.  It  swells  the  demand  for  labor  and 
materials,  however,  and  must  pay  the  high  prices  while  it 
exists. 

The  investment  demand,  which  is  controlled  almost 


DEPRESSIONS     1897    TO     1908      181 

entirely  by  prices,  is,  however,  the  governor  of  the  volume 
of  all,  for  when  that  is  completed  and  experiences  its 
sudden  decline  in  volume,  the  stimulus  for  the  large 
increase  in  necessity  construction  ceases,  and  that,  too, 
experiences  a  large  decline  in  volume.  The  consumption 
of  iron  during  this  revival  rose  from  a  12,900,000  tons- 
per-annum  rate  in  July,  1904,  to  a  27,500,000  tons-per- 
annum  rate  in  October,  1907. 

THE   DECLINE 

When  the  financial  panic  of  October,  1907,  occurred, 
consumption  of  iron  dropped  from  a  27,500,000  tons-per- 
annum  rate  to  a  12,500,000  tons-per-annum  rate,  within 
three  months.  Factories,  furnaces,  mills,  and  industrial 
machinery  generally  all  over  the  country  received  a 
sudden  check,  and  a  great  army  of  breadwinners  was 
again  thrown  out  of  employment. 

There  was  no  flood  of  untenable  alleged  causes  in  the 
United  States  to  account  for  this  sudden  depression  of 
the  industries,  as  it  was  perfectly  evident  to  every  one 
that  it  was  the  result  of  the  panic;  but  the  industrial 
nations  of  Europe  soon  after  suffered  from  a  sudden  de- 
cline in  their  industries,  and  those  nations  experienced  no 
panic;  therefore,  the  flood  of  untenable  alleged  causes 
had  full  sway  in  those  countries.  This  is  good  evidence 
that  the  people  were  at  a  loss  to  account  for  the  depres- 
sion in  those  countries,  and  that  it  was  not,  in  those  coun- 
tries, the  effect  of  an  external,  known,  or  acknowledged 
cause. 

Now  the  United  States,  as  well  as  the  four  industrial 
nations  of  Europe,  had  experienced  a  period  of  abnor- 
mally high  prices  in  the  first  half  of  1907,  similar  to  the 
periods  of  1899  and  1902  (see  diagram,  Appendix  L); 
therefore,  if  the  theory  on  which  this  treatise  is  founded  is 
correct,  the  industries  of  all  these  other  countries  as  well 
as  of  our  own  country  must  have  been  in  a  condition 
of  impending  depression  from  purely  industrial  causes, 
when  the  panic  of  October,  1907,  occurred  in  the  United 


182    INDUSTRIAL    DEPRESSIONS 

States.  The  events  of  1907  in  the  United  States  should 
therefore  be  analyzed  to  find  out  if  the  facts  confirm  this 
theory. 

Analysis  of  this  period  shows  that  contracts  for  in- 
vestment construction  commenced  to  fall  off  during  the 
latter  part  of  1904,  but  that  contracts  for  necessity  con- 
struction continued  in  large  volume  through  1905  and 
1906.  The  whole  volume  of  contracts  for  construction, 
as  far  as  actual  cubic  quantity  is  concerned,  however,  was 
less  in  1906  than  in  1905,  and  less  in  1907  than  in  1906. 
The  amount  of  construction  contracted  for  in  1907  was 
surprisingly  small  in  comparison  with  1904,  when  actual 
quantity  is  considered.  In  fact,  analysis  shows  that  the 
volume  of  contracts  for  unfinished  construction  in  the 
United  States  by  September,  1907,  the  month  before 
the  panic,  had  fallen  so  low  that  it  had  almost  reached 
the  necessity  basis ;  while  as  noted  above,  actual  construc- 
tion was  at  that  time  just  the  reverse,  that  is,  at  the 
highest  point  for  the  entire  four  years. 

The  microbe  of  industrial  depression  commenced  its 
work  in  this  boom  as  early  as  December,  1904,  when  the 
contracting  for  investment  construction  first  commenced 
to  fall  off.  This  class  of  contracting  revived  somewhat 
in  the  spring  and  summer  of  1905,  but  fell  off  rapidly 
after  that  time.  Long  before  the  beginning  of  1907,  the 
far-seeing  ones  had  ceased  making  such  contracts.  The 
contracts  for  construction  made  in  1907  were  confined 
almost  entirely  to  necessity  construction,  and  a  small 
amount  of  investment  construction  indulged  in  by  in- 
vestors who  were  less  prudent  than  the  far-seeing  ones. 
Month  after  month,  in  1907,  the  unfinished  work  on 
existing  contracts  was  growing  less  and  less,  while  month 
after  month  the  actual  construction  was  growing  greater 
and  greater. 

Construction  contracts,  as  we  have  shown,  are  neces- 
sarily made  months  and  years  before  the  actual  work  they 
involve  is  completed,  hence  it  follows  that  the  making 
of  construction  contracts  must  shrink  to  a  minimum 


DEPRESSIONS     1897     TO     1908      183 

months  and  years  before  the  work  they  involve  shrinks 
to  a  minimum. 

This  shrinkage  in  the  volume  of  contracts  for  invest- 
ment construction  in  1906  and  1907,  and  shrinking  in 
the  volume  of  contracts  for  necessity  construction,  was 
apparently  not  even  dreamed  of  by  the  public.  They 
only  saw  the  immense  and  constant  increase  in  actual 
construction. 

The  country  should  know  every  month  the  amount  of 
unfinished  construction  on  the  whole  volume  of  existing 
contracts  for  construction,  just  as  the  builders  of  battle- 
ships and  other  large  structures  know  from  month  to 
month  just  what  percentage  of  their  respective  construc- 
tions is  completed,  and  what  percentage  is  still  to  be 
executed. 

CONDITION   OF  THE   INDUSTRIES   IN    1907  AS   SHOWN  BY 
THE   BUILDING   PERMITS   OF   SIXTY   CITIES 

Unfortunately  we  have  no  system  of  gathering  statistics 
to  warn  the  public  of  the  silent,  rapid,  and  inexorable 
lessening  of  the  amount  of  unfinished  work  on  existing 
contracts,  and  no  reliable  statistics  of  the  great  falling 
off  in  the  making  of  new  ones.  Everything  upon  the 
surface  seems  to  indicate  just  the  reverse  of  what  is 
actually  taking  place.  The  only  statistics  we  have  at 
the  present  time  which  give  any  basis  for  even  an  ap- 
proximate estimate  of  these  conditions  are  the  quarterly 
reports  of  the  United  States  Steel  Corporation,  giving  the 
" Unfilled  Orders  on  Hand"  of  its  subsidiary  companies 
(see  Appendix  Q),  and  the  monthly  and  annual  statements 
of  "The  American  Contractor,"  of  Chicago,  giving  the 
building  permits  of  some  sixty  cities  (see  Appendix  P).* 
As  will  be  observed,  the  building  permits  issued  by  these 
sixty  cities  in  1906  amount  to  a  total  of  $667,032,499, 
and  in  1907  to  a  total  of  $580,492,196,  showing  an 
apparent  loss  of  but  $86,540,300  for  the  year. 

*  Since  the  above  was  written,  the  Department  of  Commerce  and  Labor 
has  commenced  to  gather  and  publish  statistics  of  the  Building  Permits. 


184    INDUSTRIAL    DEPRESSIONS 

The  probability  is  that  most  people  who  saw  and  read 
this  report  of  building  permits  were  impressed  with  the 
idea  that  these  statistics  indicated  that  there  was  more 
than  enough  business  hi  prospect  to  employ  the  whole 
capacity  of  the  country  as  soon  as  the  effect  of  the  panic 
was  over.  They  probably  knew  that  the  amount  of  con- 
struction contracted  to  be  executed  in  1906  and  1907 
proved  to  be  greatly  in  excess  of  the  capacity  of  the 
country  to  execute  in  those  years,  and,  as  the  figures  in 
the  above  paragraph  showed  a  loss  of  but  13  per  cent, 
between  the  two  years,  the  natural  inference  must  have 
been  that  there  was  as  much  in  prospect  for  1908  as  the 
country  would  be  able  to  execute.  Let  us  analyze  this 
report,  and  find  out  what  it  really  did  indicate. 

ANALYSIS  OF  BUILDING   PERMITS 

Now  it  is  the  quantity  of  construction  and  not  its  cost  in 
dollars  and  cents  which  gauges  the  amount  of  labor  em- 
ployed and  the  amount  of  materials  consumed.  If  a 
given  structure  were  built  in  1898  at  a  cost  of  $10,000,  and 
the  exact  duplicate  of  that  structure  were  built  in  1907  at 
a  cost  of  $20,000,  it  increased  the  building  permit  list,  in 
the  last  year,  100  per  cent,  in  the  city  where  it  was  taken 
out,  but  it  did  not  provide  one  hour  more  employment 
to  the  breadwinners  who  were  connected  with  its  erection, 
or  consume  one  particle  more  of  construction  materials. 
If,  therefore,  we  would  know  the  true  significance  of  the 
relative  amount  of  building  permits  of  these  sixty  cities 
for  the  years  1906  and  1907,  we  must  reduce  both  years 
to  the  same  level  of  prices,  as  these  building  permits  are 
supposed  to  represent  the  cost  of  the  proposed  construc- 
tion at  the  time  the  permits  are  applied  for,  and  the 
cost  of  construction  was  much  higher  in  1907  than  in 
1906. 

By  reference  to  Appendix  E,  it  will  be  observed  that 
the  average  price  of  iron  per  ton  for  the  years  in  question 
was  $18.34  in  1906  as  against  $22.40  in  1907,  an  advance 
of  21-jVo-  per  cent.  Taking  this  as  the  gauge  of  the 


DEPRESSIONS     1897    TO     1908      185 

cost  of  construction,  and  reducing  the  two  years  to  the 
same  basis,  on  this  percentage  we  find  that  the  loss  of 
1907  over  1906,  on  a  quantity  basis,  was  equivalent  to 
$231,019,542,  or  something  over  34  per  cent.  Now,  as  a 
rule,  the  largest  amount  of  building  permits  for  each 
year  are  taken  out  from  March  to  July,  inclusive.  In 
the  reports  we  have  before  us,  of  one  of  the  largest  Ameri- 
can cities,*  the  sum  total  of  those  taken  out  in  these  five 
months  is  58  per  cent,  of  the  amount  taken  out  in  the 
whole  twelve  months.  If,  therefore,  the  usual  custom 
prevailed,  and  as  much  as  58  per  cent,  of  the  permits  for 
each  year  were  taken  out  in  March  to  July,  during  which 
period  the  average  price  of  iron  was  $16.75  per  ton  in 
1906,  as  against  $23.99  per  ton  in  1907,  then  the  amount 
covered  by  the  permits  taken  out  in  the  year  1907,  on  a 
quantity  basis,  was  equivalent  to  a  loss  of  $286,823,974, 
which  was  43  per  cent,  less  than  hi  1906.f 

By  reference  to  the  diagram  in  Appendix  L,  it  will 
be  observed  that  the  necessity  construction  for  1907, 
represented  by  the  space  between  the  line  (7,  the  line  B, 
and  the  side  lines  V  and  TF,  was  equal  to  about  two  thirds 
of  the  whole  construction  of  the  country  for  that  year, 
and  that  as  the  building  permits  taken  out  hi  1907  showed 
a  falling  off  of  from  34  per  cent,  to  43  per  cent,  below  the 
permits  taken  out  in  1906,  construction  contracts  were 
actually  down  to,  or  below,  the  necessity  basis  hi  1907; 
hence  the  actual  construction  of  1908  would  have  been 
down  to  a  necessity  basis,  even  if  there  had  been  no 
panic. 

From  this  analysis,  it  seems  to  be  clear  that  what 
appeared  upon  the  surface  of  the  statistics  of  building 

*  Philadelphia. 

t  Any  estimate  made  on  these  figures  must  necessarily  be  merely  an 
approximate  estimate,  as  there  is  no  data  giving  the  exact  percentage  of 
difference  in  the  average  cost  of  general  construction  between  the  two 
years.  If  the  average  advance  in  all  things  entering  into  construction  was 
the  same  as  the  advance  in  iron,  and  the  permits  were  taken  out  in  the 
usual  monthly  proportions,  then  the  falling  off  in  quantity  between  1906 
and  1907  would  be  forty-three  per  cent. 


186    INDUSTRIAL    DEPRESSIONS 

permits  to  be  good  evidence  that  the  business  of  1908 
would  have  been  up  to  the  full  capacity  of  the  country 
had  there  been  no  panic,  was  in  fact  conclusive  evidence 
that  the  year  1908  would,  hi  any  case,  have  recorded  the 
beginning  of  another  period  of  industrial  depression  hi 
the  United  States. 

CONDITION   OF  THE   INDUSTRIES  IN   1907  AS  SHOWN 

BY  THE  UNFILLED   ORDERS  OF   THE  UNITED 

STATES  STEEL  CORPORATION 

The  quarterly  reports  of  the  United  States  Steel 
Corporation  of  the  " Unfilled  Orders  on  Hand"  referred 
to  on  page  183,  are  on  some  accounts  more  satisfactory 
to  make  estimates  from  than  the  building  permits  of  the 
sixty  cities,  as  the  Steel  Corporation's  output  represents 
about  50  per  cent,  of  the  entire  business  of  the  country 
in  its  particular  line  of  production,  and  therefore  reflects 
the  volume  of  the  country's  entire  business.  Then,  too, 
the  figures  are  given  in  quantities,  instead  of  market 
values,  hence  they  are  free  from  any  uncertainties  as  to 
the  volume  of  business  they  indicate.  On  reference  to 
Appendix  Q,  it  will  be  observed  that  on  December  31, 
1906,  the  unfilled  orders  of  that  corporation  amounted 
to  8,489,718  tons,  while  on  September  30,  1907,  which 
was  before  the  financial  panic,  they  had  decreased  to 
6,425,000  tons.  This  shows  a  falling  off  of  24  per  cent, 
in  nine  months. 

If  there  had  been  no  panic  and  this  rate  of  decrease  had 
been  kept  up  during  the  next  three  months — and  there  is 
no  reason  to  believe  that  it  would  not  have  been — it  is 
quite  clear  that  the  country  would  have  entered  the  year 
1908  with  a  reduction  of  32  per  cent,  within  twelve 
months  hi  contracts  for  construction  materials.  By  re- 
ferring again  to  the  diagram  in  Appendix  L,  it  will  be 
observed  that  this  would  have  brought  the  country's 
contracts  for  construction  down  to  a  necessity  basis  in 
January,  1908.  This  being  the  case,  it  is  clear  that  the 
country  would  have  been  in  a  condition  of  industrial 


DEPRESSIONS     1897    TO     1908      187 

depression  soon  after  January,  1908,  even  if  there  had  been 
no  panic. 

REMARKS 

From  these  facts  it  is  clear  that  the  theory  referred  to 
on  page  181,  to  the  effect  that  an  industrial  depression 
from  purely  industrial  causes  was  pending  in  this  country 
when  the  panic  of  October,  1907,  occurred,  was  abun- 
dantly confirmed  by  the  evidences  given  of  the  reduced 
amount  of  unfinished  construction  work  remaining  when 
the  panic  came,  and  by  the  continuance  of  the  depression 
after  the  panic  effects  had  passed  away. 

The  condition  of  a  large  decrease  in  the  contracts  for 
construction  over  a  long  period,  at  the  same  time  that 
there  is  a  large  increase  in  actual  construction,  was  not 
peculiar  to  this  last  boom  nor  to  this  country.  It  has 
existed  in  all  of  the  industrial  booms  of  the  last  cen- 
tury, in  all  of  the  industrial  nations.  This  is  the  con- 
dition which  so  invariably  deceives  the  public  towards 
the  end  of  each  boom  period,  and 'causes  it  to  be  confi- 
dent that  there  is  a  long  period  of  assured  prosperity 
ahead,  whereas,  if  the  true  conditions  were  recognized,  it 
would  be  known  that  the  microbe  of  industrial  depression 
had  already  done  its  deadly  work,  that  the  whole  indus- 
trial system  was  saturated  with  the  malady,  and  that  the 
malady  itself  would  soon  make  its  presence  known  by 
breaking  out  upon  the  surface. 

This  was  the  condition  of  the  industries  during  the 
height  of  visible  prosperity  in  1899,  again  in  the  height  of 
visible  prosperity  in  1902,  and  again  during  the  height 
of  visible  prosperity  in  1907,  and  this  condition  has 
always  been  followed  by  an  industrial  depression.  An 
industrial  depression  solely  from  industrial  causes  was 
impending  in  all  the  industrial  nations  during  the  latter 
part  of  1907,  and  it  soon  made  its  appearance  in  all  of 
them,  although  a  financial  panic  occurred  in  but  one  of 
them.  The  panic  undoubtedly  precipitated  the  depres- 
sion in  this  country,  but  only  by  a  very  short  tune. 


188    INDUSTRIAL    DEPRESSIONS 

Adam  Smith  maintained,  more  than  a  hundred  years 
ago,  that  low  prices  stimulated  consumption  and  high 
prices  checked  consumption.  He  did  not  mean  that  this 
applied  to  small  things  and  necessities  only.  He  meant 
that  it  was  true  of  all  things  in  which  people  invest  their 
money.  All  men  see  from  day  to  day  that  it  is  true  of 
small  things,  but  of  construction,  appearances  seem  to 
indicate  that  the  reverse  of  the  rule  is  true.  Our  analysis 
satisfies  us  that  it  is  not  only  true  of  all  things,  but  that 
construction  is  even  more  sensitive  to  this  motive  than 
are  necessities  or  small  things.  We  believe  that  small 
fluctuations  in  price  are  as  certain  to  influence  the  volume 
of  what  we  call  investment  construction,  as  are  small 
fluctuations  in  the  Bank  of  England's  discount  rates 
certain  to  influence  the  volume  of  the  Bank's  loans. 


PART  IV 

DEDUCTIONS    DRAWN    FROM    THE    RESULTS 
OF    ANALYSIS 


CHAPTER  XVI 


DEDUCTIONS   DRAWN   FROM   THE   RESULTS   OF  ANALYSIS 

IF  the  ups  and  downs  of  the  business  of  the  industrial 
nations  were  still  controlled  by  large  and  small  crops, 
or  were  controlled  by  some  celestial  or  terrestial  force,  or 
by  some  cause  which  occurred  with  simple  or  compound 
cycles  of  periodicity,  it  would  be  possible  to  make  some 
predictions  as  to  how  long  any  depression  would  last. 
The  most  exhaustive  analysis,  however,  does  not  show  the 
least  evidence  of  any  uniformity  as  to  the  length  of  time 
which  has  elapsed  during  any  stage  of  these  ups  and  downs. 
The  following  table  gives  the  approximate  length  of 
tune  between  the  different  stages  of  the  ups  and  downs  hi 
the  nine  booms  and  depressions  between  1835  and  1907 
hi  the  United  States: 


Years  of 
largest  con- 
struction 

Number  of 
years  occu- 
pied in  the 
down  grade 

Number  of 
years  of  low 
prices 

Number  of 
years  occu- 
pied in  the 
up  grade 

Special  features 

1835 

7* 

3 

4| 

Panic  in  fall  of  1837. 

1847 

4* 

2* 

4* 

* 

1856 

5 

2* 

3 

Panic  in  1857. 

1864 

5 

2 

3 

* 

1872 

6 

2J 

3 

Panic  in  fall  of  1873. 

1881 

15 

3 

3 

Five      financial     disturb- 

ances between  1890  and 

1896. 

1899 

H 

1J 

3* 

1903 

1 

2 

si 

* 

1907 

—  — 

— 

Panic  in  fall  of  1907. 

*  Only  minor  financial  flurries. 

As  will  be  observed,  this  table  shows  no  uniformity  in 
the  length  of  time  which  has  elapsed  during  any  stage  of 
the  ups  and  downs.  The  periods  of  depression  vary  from 

191 


192    INDUSTRIAL    DEPRESSIONS 

one  to  fifteen  years,  the  periods  of  recovery  from  three 
to  four  and  one  half  years.  Among  the  several  notice- 
able features  shown  by  this  table,  is  the  fact  that  hi  the 
depression  periods,  which  were  accompanied  by  one  or 
more  financial  panics,  the  time  occupied  by  the  down 
grade,  or  depression,  has  usually  been  much  longer  than 
when  such  periods  were  not  accompanied  by  a  panic. 
The  longest  period  (1881  to  1899)  was  accompanied  by 
five  financial  disturbances.  This  would  seem  to  be  a 
quite  logical  result,;  but  it  cannot  be  claimed  as  a  rule 
or  a  necessary  consequence,  as  the  period  following  1864 
was  an  exception.  That  period  of  depression,  though  not 
accompanied  by  a  panic,  was  as  long  as  the  next  period 
before,  which  was  accompanied  by  a  very  severe  panic. 

As  there  is  no  uniformity  in  the  length  of  a  boom,  so 
there  is  none  in  the  length  of  a  depression.  Both  are 
simply  business  movements  governed  by  business  condi- 
tions; these  business  conditions  are  constantly  changing, 
and  consequently  there  are  no  two  booms  or  depressions 
found  which  are  alike  in  the  length  of  time  they  occupy, 
nor  can  any  two  be  found  which  are  exactly  alike  in  all 
their  general  features.  People  pay  out  their  money  for 
food,  clothing,  fuel,  and  lights,  with  a  near  approach  to 
regularity,  but  the  people  who  have  surplus  funds  pay 
these  funds  out  hi  the  construction  of  buildings,  railroads, 
ships,  etc.,  with  great  irregularity. 

All  revivals  of  construction  have  been  on  low  prices, 
but  no  uniformity  can  be  discovered  as  to  how  low  prices 
must  go  before  a  revival  takes  place.  On  reference  to 
Appendix  Z,  it  will  be  seen  that  eight  of  the  eleven  revivals 
have  been  on  prices  of  iron  which  were  lower  than  ever 
before.  The  three  exceptions  occurred  as  follows:  one 
in  1871,  when  the  price  was  50  per  cent,  higher  than  the 
lowest  previous  price,  which  was  in  1861 ;  another  occurred 
in  1901,  when  the  price  was  32  per  cent,  higher  than  the 
lowest  previous  price,  which  was  in  1897,  and  a  third 
occurred  in  1904,  when  the  price  was  28  per  cent,  higher 
than  the  lowest  previous  price  in  1897. 


DEDUCTIONS    FROM    ANALYSIS  193 

In  the  face  of  all  this  absence  of  regularity  of  conditions 
in  the  past,  it  would  be  a  wise  man  who  could  at  any  time 
predict  when,  or  on  what  basis  of  prices,  a  revival  of  con- 
struction would  take  place.  The  only  thing  that  can  be 
calculated  upon  with  certainty,  is  that  a  depression  caused 
by  high  prices  of  construction  will  not  come  to  an  end 
until  prices  of  construction  again  drop  to  such  a  low 
figure  that  the  far-sighted  individuals  who  control  the 
purse-strings  of  the  country  believe  them  to  be  at  or  near 
the  bottom  and  too  low  to  continue. 

EFFECTIVE    DEMAND 

We  have  seen  that,  with  the  entire  force  of  industrial 
breadwinners  continuously  at  work,  producing  the  largest 
possible  quantity  of  the  objects  of  permanent  wealth,  it 
would  be  impossible  for  them  to  produce  more  than  man 
would  have  the  means  to  acquire,  or  more  than  he  would 
have  the  desire  to  possess  (see  page  41).  In  these  facts 
lies  the  rock  of  industrial  safety,  for  in  these  facts  we  have 
evidence  that  a  continuous  condition  of  maximum  pro- 
duction of  the  objects  of  permanent  wealth  is  not  only 
natural  but  practically  possible,  and  maximum  production 
of  the  objects  of  permanent  wealth  is  prosperity. 

Maximum  production,  however,  will  not  long  continue, 
unless  it  is  supported  by  maximum  sale.  The  experience 
of  the  past  shows  that  as  long  as  prices  are  low,  and  people 
believe  they  are  gaining  by  purchasing,  they  will  continue 
to  purchase,  and  prosperity  will  continue;  but  just  to  the 
extent  that  prices  go  so  high  that  people  believe  they  will 
lose  by  buying,  just  to  that  extent  they  will  stop  buying, 
and,  if  this  condition  is  continued,  depression  will  result. 

Prosperity,  therefore,  does  not  depend  upon  the  pro- 
ducer's ability  to  manufacture  and  his  desire  to  sell,  but 
upon  his  ability  and  willingness  to  sell  at  a  price  that  will 
induce  the  purse-string  holders  to  purchase.  Therefore, 
prosperity  depends  upon  an  effective  demand.  Now 
effective  demand  is  defined  as  "a  desire  for  an  article,  and 
the  possession  of  some  equivalent  to  be  given  for  it." 


194    INDUSTRIAL    DEPRESSIONS 

This  description  may  seem  sufficient  to  the  theorist,  but 
to  the  practical  mind  it  lacks  a  most  important  feature. 

For  instance,  when  the  depressions  of  1900  and  1903 
occurred,  the  ever-present  desire  for  such  objects  of  wealth 
as  constructive  products  existed  to  the  fullest  extent,  and 
the  existing  means  to  pay  for  them  was  greater  than  ever 
before  hi  the  history  of  the  country.  Notwithstanding 
these  conditions,  the  demand  fell  off  enormously,  simply 
because  the  producers  were  either  not  able  or  not  willing 
to  sell  at  a  price  which  the  investing  purse-string  holders 
were  willing  to  pay.  Political  economy  should  have 
accurate  and  exact  treatment,  otherwise  the  conclusions 
reached  will  not  be  accurate.  The  desire  for  an  article 
and  the  possession  of  an  equivalent  to  give  in  exchange 
for  it  may  exist  in  the  greatest  abundance  on  the  part  of 
the  purse-string  holders,  but  if  it  is  not  met  by  producers 
with  the  article  desired,  and  the  ability  and  willingness  to 
sell  it  at  a  price  the  purse-string  holders  are  willing  to 
pay,  maximum  production  will  not  long  continue,  and, 
if  this  condition  is  not  changed,  depression  will  certainly 
result. 

For  illustration  of  the  opposite  conditions,  turn  to  the 
low-priced  periods  of  1897,  1898,  1901,  and  1904,  when 
there  existed  a  genuine  effective  demand,  namely,  the 
coming  together  of  purse-string  holders  and  producers. 
The  first  had  a  desire  for  objects  of  construction,  with  the 
means  to  give  in  exchange  for  them,  and  the  second  were 
able  and  willing  to  supply  such  objects  at  prices  which 
the  first  were  willing  to  pay.  These  are  the  ideal  condi- 
tions of  prosperity,  and  whenever  and  wherever  they  have 
existed,  unless  prevented  by  external  and  recognized 
derangement,  they  have  resulted  in  prosperity,  and  the 
prosperity  has  continued  as  long  as  these  conditions  existed. 
But  as  soon  as  prices  advanced  to  figures  which  the  purse- 
string  holders  were  not  willing  to  pay,  the  effective  demand 
ceased  to  exist. 


CHAPTER  XVII 

MAGNITUDE  OF  THESE  DEPRESSIONS,  AND  DANGER  THAT 
THE  VALUABLE  LESSONS  THEY  SHOULD  TEACH  WILL 
BE  LOST 

AN  industrial  depression  which  throws  out  of  employ- 
ment one  out  of  every  five  of  the  breadwinners  of  this 
country  is  a  great  calamity.  It  is  a  loss  at  the  rate  of 
over  $3,000,000,000  in  the  annual  earnings  of  the  people, 
an  amount  nearly  equal  to  the  value  of  all  the  gold  and 
silver  taken  out  of  the  western  continent  since  it  was 
discovered  by  Columbus.  As  the  country  grows  in  popu- 
lation and  wealth,  the  magnitude  of  these  calamities 
grows.  As  labor  becomes  specialized,  and  as  the  control 
of  the  great  industries  becomes  centralized,  the  helpless- 
ness of  those  who  are  thrown  out  of  employment  becomes 
greater.  What  has  already  grown  to  be  a  serious  matter 
may  grow  to  be  a  dangerous  matter. 

The  United  States  has  experienced  eleven  of  these 
calamities  within  eighty  years.  Is  this  not  enough? 
Must  the  country  suffer  from  eleven  more  before  it  will 
make  a  persistent  effort  to  satisfy  itself  what  the  real 
cause  is?  Will  the  opportunity  to  identify  the  true  cause 
be  any  better  at  the  end  of  another  eighty  years?  It  is 
the  magnitude  of  these  disasters  which  measures  the  im- 
portance to  the  industrial  nations  of  knowing  why  they 
come  and  how  they  may  be  avoided.  If  it  be  true  that 
these  depressions  are  caused  by  the  abnormally  high 
prices  of  construction,  can  the  government  or  the  people 
afford  to  spare  any  expense  or  trouble  to  satisfy  them- 
selves of  this  truth,  and,  if  possible,  prevent  these  depres- 
sions in  the  future? 

A  thorough  analysis  of  any  one  of  the  depressions  which 

195 


196    INDUSTRIAL    DEPRESSIONS 

has  occurred  during  the  last  fifty  years  would  have  revealed 
the  truth,  but,  after  each  one,  the  great  flood  of  untenable 
alleged  causes,  born  of  synthetic  reasoning,  has  buried  the 
real  cause  out  of  sight.  The  same  danger  now  threatens 
to  deprive  the  country  of  the  valuable  lessons  the  last 
depressions  should  teach,  and,  what  is  still  more  fatal, 
every  depression,  except  those  caused  by  or  accompanied 
by  panics,  has  been  belittled  or  ignored,  until  a  large  part 
of  the  public  has  come  to  believe  that  we  can  get  rid  of 
depressions  by  simply  doing  away  with  panics.  This 
they  think  we  are  in  a  fair  way  to  accomplish,  and  so 
little  or  no  effort  is  now  being  made,  either  by  govern- 
ments or  by  individuals,  to  study  the  cause  of  depressions. 
It  is  reasonable  to  believe  that  industrial  depressions 
may  be  eradicated  from  the  industrial  system  as  many 
maladies  are  eradicated  from  the  human  system.  To 
accomplish  this,  the  disease  must  be  located,  the  microbe 
identified,  and  an  effectual  remedy  discovered  and  applied. 
In  the  present  case,  the  people  do  not  understand  even 
the  nature  of  the  malady,  its  location,  or  the  character  of 
the  microbe.  To  convince  the  people  is,  therefore,  the 
first  and  most  important  step  in  the  work  of  preventing 
these  calamities  in  the  future. 

DANGER    THAT    THE    NATION    WILL    LOSE    THE    VALUABLE 
LESSON    THE    TWELVE-YEAR    PERIOD    SHOULD    TEACH 

There  will  probably  never  be  a  period  in  the  future 
when  low  prices  of  construction  and  high  prices  of  con- 
struction will  have  a  clearer  or  more  vivid  illustration 
of  their  dominating  influence  over  the  increases  and  de- 
creases in  the  industries  of  the  nation  than  in  the  two 
periods  of  revival  and  decline  between  1896  and  1903. 

During  these  periods  hundreds  of  the  contributory  causes 
of  prosperity  and  depression  were  in  existence,  and  each 
had  its  due  influence,  but  they  counted  as  nothing  in  the 
presence  of  the  one  great  controlling  influence  of  high  and 
low  prices  of  construction.  Rigid  analysis  shows  that 
the  connection  between  the  cause  and  the  effect  was  in 


MAGNITUDE    OF    DEPRESSIONS    197 

each  case  prompt,  positive,  clean-cut,  and  inexorable. 
In  each  case,  when  prices  were  low  and  stable  for  any 
considerable  period,  contracts  for  investment  construction 
were  made  in  greater  volume  than  ever  before  in  history. 
When  prices  advanced,  this  class  of  contracting  was 
reduced  to  a  minimum,  and,  when  the  extra  construction 
was  completed,  there  was  not  enough  remaining  to  absorb 
the  available  supply  of  labor  and  materials,  and  the  booms 
quickly  came  to  an  end. 

The  dominating  influence  of  the  high  and  low  prices 
of  construction  was  just  as  perfect  in  the  period  of  revival, 
boom,  and  depression,  between  1904  and  1907,  as  it  was  in 
the  two  periods  just  before.  The  only  difference  was  that 
the  pending  falling  off  in  actual  construction  did  not  have 
an  opportunity  of  revealing  itself  as  independent  of  the 
panic  of  October,  1907,  in  consequence  of  its  having  been 
preceded  and  overshadowed  by  the  vivid  and  startling 
occurrence  of  the  panic. 

A  glance  at  the  diagram  in  Appendix  L  will  make  it 
clear  that  the  two  short  depressions  of  1900  and  1903  were 
as  severe  while  they  lasted  as  the  longer  one  which  com- 
menced with  the  panic  of  October,  1907.  In  fact,  they 
carried  the  rate  of  construction  down  to  even  a  lower 
point,  and  the  newspapers  teemed  with  accounts  of  the 
great  distress  and  of  the  thousands  of  idle  workmen  all 
over  the  country.  "The  New  York  Herald"  of  October, 
12,  1903,  states  that  the  falling  off  in  building  operations 
in  eight  cities  amounted  to  $42,500,000  in  nine  months, 
as  compared  with  1902,  including  $10,000,000  hi  New 
York  (Manhattan)  and  $14,000,000  in  Chicago.  It  also 
mentions  the  great  number  of  projected  buildings  for 
which  permits  were  obtained,  but  the  projectors  " changed 
their  minds, "  and  adds,  that  in  cities  where  the  building 
permits  showed  a  gain  the  actual  building  showed  a  loss. 

In  New  York  there  was  a  great  strike  in  the  building 
trades  in  progress  in  1903,  and  the  large  falling  off  in  con- 
struction was  attributed  entirely  to  this  strike.  The 
absurd  feature  of  this  claim  was  that  the  falling  off  was 


198    INDUSTRIAL    DEPRESSIONS 

greater  in  Chicago,  where  there  was  no  strike,  than  it  was 
in  New  York.  In  fact,  in  an  article  in  "The  New  York 
Commercial  Advertiser"  of  October  8, 1903,  it  was  stated 
that  Chicago  had  not  been  so  free  from  labor  troubles  for 
a  long  time,  and  that  there  were  probably  not  300  building 
tradesmen  on  strike,  and  yet  the  falling  off  in  Chicago  was 
$14,000,000  against  $10,000,000  hi  New  York.  The  fact 
was  that  the  strike  in  New  York  stopped  work  on  many 
of  the  structures  a  few  weeks  before  the  large  volume 
of  investment  contracts  were  completed,  and  by  that  much 
time  delayed  the  impending  falling  off  in  construction  in 
New  York.  In  Chicago  and  the  country  generally,  the 
buildings  were  completed  without  any  interruption,  after 
which  workmen  were  discharged  in  large  numbers,  simply 
because  there  was  not  enough  construction  remaining  to 
keep  them  employed.  It  would  have  been  the  same  hi 
New  York,  had  there  been  no  strike. 

The  two  depressions  of  1900  and  1903  are  particu- 
larly valuable  for  analysis:  first,  because  of  their  great 
severity;  second,  because  of  the  entire  absence  of  any 
serious  external  depression  cause  to  influence  the  sequence 
of  events,  and,  third,  because  of  the  short  time  they 
covered,  and  hence  the  number  and  rapidity  of  the 
illustrations  of  the  inexorable  sequence  of  the  real  cause 
and  its  effects. 

Among  the  most  noticeable  features  of  these  two  short 
depressions  was  that  they  occurred  in  all  five  of  the  indus- 
trial nations  contemporaneously,  and  that  a  great  number 
of  articles  were  published  in  each  one  of  them  attributing 
the  depressions  to  a  number  of  local  alleged  causes  peculiar 
to  the  respective  nations.  They  lost  sight,  apparently,  in 
each  nation,  of  the  fact  that  the  four  other  industrial 
nations  were  also  suffering  from  like  depressions.  This 
should  have  at  least  created  the  suspicion  that  the  same 
cause  might  be  responsible  for  the  depressions  in  all  of 
them.  Another  noticeable  feature  was  the  almost  total 
absence  of  any  hint  from  any  source  of  what  the  real  cause 
was. 


MAGNITUDE    OF    DEPRESSIONS     199 

There  is  great  danger  that  the  two  severe  depressions 
of  1900  and  1903,  which  were  not  attended  by  panics,  will 
be  so  belittled  and  ignored  that  they  will  in  time  be 
practically  forgotten,  and  that  history  will  tell  of  "the 
great  eight-year  boom  of  1899  to  1907,  which  was  brought 
to  an  end  by  the  panic  of  October,  1907."  Thus  the 
valuable  lessons  which  were  so  vividly  illustrated  in  the 
twelve-year  period  may  be  totally  lost  to  the  world,  as 
were  the  depressions  which  were  not  accompanied  by 
panics  from  1832  to  1885.  The  premonitory  symptoms 
of  this  tendency  are  already  cropping  up  in  many  direc- 
tions. In  the  annual  review  of  an  important  association, 
published  in  June,  1902,  occurs  the  following  sentence: 
"The  era  of  unexampled  prosperity  for  the  industries  of 
this  country,  which  may  be  said  to  have  been  ushered  in 
at  the  beginning  of  1899,  when  an  active  demand  for  iron 
and  steel  was  suddenly  developed,  accompanied  by  rising 
prices,  has  continued  from  that  day  to  this,  and  at  no  time 
has  it  been  more  noticeable  or  more  fruitful  of  good  result 
than  when  these  lines  are  written  in  May,  1902."  Again, 
in  an  annual  report  at  the  close  of  1907,  the  same  authority 
writes:  "The  year  1907,  which  is  drawing  to  its  close  as 
this  report  is  written,  has  witnessed  the  sudden  culmina- 
tion of  the  period  of  remarkable  and  long-continued  pros- 
perity which  was  ushered  in  early  in  1899"* 

As  will  be  observed,  both  the  periods  of  depression  in 
1900  and  1903  are  ignored.  In  fact,  the  substance  of  the 
wording  of  these  clauses  is  to  the  effect  that  they  did  not 
take  place.  In  the  first  of  these  two  ignored  depressions, 
the  consumption  of  iron  in  the  United  States  fell  off  from 
a  15,800,000  tons-per-annum  rate  to  a  10,800,000  tons- 
per-annum  rate.  In  the  second  period,  consumption  of 
iron  fell  off  from  a  20,200,000  tons-per-annum  rate  to  a 
10,100,000  tons-per-annum  rate,  and  this  meant  in  each 
case  that  construction  fell  off  in  proportion.  These 
depressions  were  not  confined  to  the  United  States  — 
they  visited  all  the  industrial  nations.  They  came  from 

*  The  italics  are  the  writer's. 


200    INDUSTRIAL    DEPRESSIONS 

the  abnormally  high  prices  of  construction  in  all  those 
nations.  There  was  no  other  event  of  sufficient  force  to 
have  caused  these  depressions  in  any  of  the  industrial 
nations,  and  the  depression  not  only  ceased  soon  after  the 
high  prices  of  construction  ceased,  but  throughout  the 
whole  period  the  fluctuation  in  the  volume  of  contracts 
for  construction  kept  pace  with  the  fluctuation  in  the  cost 
of  construction.  In  Germany,  iron  prices  were  controlled 
by  a  powerful  syndicate,  which  kept  prices  up  hi  the  face 
of  a  quick  decline  in  the  other  nations,  and  the  result  was 
that  the  depression  was  more  severe  and  prolonged  in 
Germany  than  in  the  other  nations. 

In  both  of  these  ignored  depressions,  the  industries 
were  cut  down  lower  in  volume  in  the  United  States  than 
they  were  by  the  financial  panic  of  October,  1907,  as  shown 
by  iron  consumption,  which  was  reduced  to  a  10,800,000 
tons-per-annum  rate  in  1900,  and  to  a  10,100,000  rate 
in  1903,  as  against  a  12,500,000  tons-per-annum  rate  in 
1908.  The  distress  among  the  breadwinners  of  the  land, 
while  the  depressions  lasted,  must  have  been  greater  in 
the  two  former  periods  than  it  is  at  present,  for  the  volume 
of  construction  was  then  smaller.  The  only  difference 
is  that  in  the  last  instance  there  was  a  vivid  and  startling 
panic.  Then,  too,  we  can  see  much  more  clearly  what  is 
near  at  hand  than  what  is  far  removed.  The  depressions 
of  1900  and  1903  are  in  the  past.  We  do  not  realize  the 
distress  of  those  periods  as  sharply  as  we  do  the  distress 
of  to-day,  but  the  depressions  existed,  and,  as  they  were 
of  great  severity  while  they  continued,  belittling  or  ignor- 
ing them  cannot  alter  the  facts.  The  effect  this  covering 
up  of  facts  has  in  blinding  the  people  and  preventing  their 
realization  of  true  conditions  is,  however,  most  deplor- 
able. 

The  depressions  of  1900  and  1903  were  the  shortest 
on  record  that  were  caused  by  purely  industrial  derange- 
ments, yet  the  backset  these  two  depressions  gave  to  the 
constructive  interests  of  the  country  was  such  that  it 
was  fifteen  months  and  eighteen  months,  respectively, 


MAGNITUDE    OF    DEPRESSIONS    201 

before  the  loss  in  industrial  activity  (as  indicated  by  the 
monthly  rate  of  iron  consumption)  was  fully  restored.* 

UNHEEDED    WARNINGS 

For  some  months  before  the  two  sudden  declines  in 
the  country's  construction  enterprises  in  1900  and  1903, 
there  had  been  among  the  news  items  from  many  parts  of 
the  country  several  articles  giving  the  names  of  large 
railroad  corporations  which  had  decided,  on  account  of 
the  high  prices,  to  cut  down  enlargements  and  improve- 
ments to  actual  necessities.  One  railroad  president,  in  a 
statement  made  in  November,  1902,  relating  to  the  cur- 
tailment already  made  by  his  road,  was  reported  in  the 
daily  papers  as  having  stated  that  the  cost  of  railroad 
supplies  had  increased  80  per  cent.,  150  per  cent.,  and 
237  per  cent,  above  the  prices  of  1897.  This  curtailment 
was  an  indication  of  what  was  going  on  all  over  the  country 
among  individuals,  and  among  small  corporations  as  well 
as  among  large  ones.  But  these  news  items  made  little 
impression  upon  the  public  mind.  What  the  public  saw 
all  about  them  was  much  more  impressive.  What  they 
saw  was,  that  consumption  of  iron  actually  increased  from 
a  17,600,000  tons-per-annum  rate  in  January,  1903,  to  a 
20,200,000  tons-per-annum  rate  in  June,  though  this  was 
many  months  after  these  news  items  were  published. 
Was  what  they  saw  not  evidence  enough  to  the  public  that 
high  prices  do  not  affect  construction?  Is  it  not  clear  that 
it  will  be  no  easy  matter  to  break  down  opinions  formed 
upon  such  plausible  evidences  as  one's  own  eyesight? 

In  both  1900  and  1903,  when  the  depression  came,  there 
was  hardly  a  suggestion  from  any  source  of  what  the  real 
cause  was.  On  the  contrary,  the  flood-gates  of  untenable 
reasoning  were  thrown  wide  open.  There  were  almost  as 
many  different  reasons  given  for  the  collapse  as  there  were 
writers  upon  the  subject.  In  a  review  of  the  1903  collapse, 
the  editor  of  one  of  the  great  periodicals,  which  reaches 
every  state  and  territory  in  the  Union,  attributed  it 
*  See  Appendices  Z  and  L. 


202    INDUSTRIAL    DEPRESSIONS 

to  a  number  of  causes,  viz.,  "unsuccessful  underwriting 
schemes,"  "  doleful  predictions  about  the  crops, "  "drought 
in  the  east,"  "weakness  in  iron  and  steel  created  appre- 
hension among  iron-consumers,"  "unsatisfactory  condi- 
tions of  market  for  securities  caused  railroad  companies 
to  postpone  projected  improvements,"  etc. ;  the  writer  of 
the  article,  being  apparently  totally  unmindful  of  the  fact 
that  for  many  months  before,  and  while  money  was  easy 
for  them  to  borrow,  most  of  these  railroads  had  not  only 
stopped  contracting  for  everything  but  necessary  improve- 
ments, but  had  publicly  and  repeatedly  given  high  prices 
as  their  reason  for  so  doing.  All  these  warnings  were 
unheeded  when  they  were  given,  because  actual  construc- 
tion was  at  its  height.  After  the  collapse  came,  these 
warnings  seem  to  have  been  totally  forgotten. 

Perhaps  one  reason  why  high  prices  are  not  recognized 
as  the  cause  of  these  depressions  is,  that  every  one  who 
has  anything  to  sell,  whether  it  be  commodities,  skill,  or 
personal  services,  wishes  high  prices,  and  so  are  not  dis- 
posed to  disparage  a  condition  which  they  personally  desire 
to  see  continued.  We  notice  that  in  market  reports, 
during  depressed  periods,  current  prices  are  compared  to 
boom  figures,  and  are  spoken  of  as  having  declined  such 
and  such  a  percentage.  No  one  seems  disposed  to  mention 
what  percentage  current  figures  are  above  old  low  prices. 
This  manner  of  reviewing  markets  is  most  soothing  to 
one's  feelings,  but  not  calculated  to  enlighten  one  as  to 
actual  conditions. 


CHAPTER  XVIII 

ANOTHER  DANGER  TO  BE  COUNTERACTED 

A  NOTHER  danger,  which  must  be  headed  off  and  dis- 
<**•  sipated,  is  the  tendency  to  believe  that  modern 
methods  have  so  changed  conditions  that  these  calamities 
are  not  likely  to  come  again.  This  is  perhaps  the  most 
serious  danger  of  all,  for  wherever  it  gains  lodgment, 
there  all  forethought  and  effort  to  make  wise  and  adequate 
provisions  towards  preventing  these  depressions  will  cease. 
After  every  depression  thus  far,  people  have  soon  drifted 
back  into  the  same  habit  of  deluding  themselves  with  the 
idea  that  the  abnormal  conditions  which  brought  on  the 
abnormal  advance  in  prices  can  never  again  recur. 
These  delusions  have  come  so  often,  and  they  have  fol- 
lowed the  ups  and  downs  in  the  country's  business  with 
such  persistent  regularity,  that  we  know  of  no  better  name 
to  give  them  than  "  Cyclic  Delusions."  We  will  describe 
two  of  them,  which  pertain  to  prices. 

CYCLIC  DELUSION  NO.  1 
"VERY  HIGH  PRICES  WILL  NEVER  COME  AGAIN" 

Each  time  that  pig  iron  has  experienced  several  years 
of  low  prices,  there  comes  a  general  belief  that  the  price 
of  iron  will  never  again  reach  abnormally  high  figures. 
This  belief  becomes  almost  universal.  It  is  harped  upon 
during  the  entire  period  of  low  prices.  If  you  attempt  to 
combat  it,  all  your  arguments  and  statistics  are  simply 
swept  aside  by  the  declaration  that  "  conditions  now  are 
different  from  what  they  ever  were  before";  but  the  very 
high  prices  come  again,  notwithstanding,  always  from 
the  same  causes,  and  following  the  same  train  of  events. 
The  price  of  pig  iron  advanced  in  this  country: 

203 


204    INDUSTRIAL    DEPRESSIONS 


From  $38.00  in  1823  to  $75.00  in  1825 

"   35.00 

1833 

70.00 

1837 

"   23.00 

1843 

52.50 

1845 

19.00 

1852 

42.50 

1854 

20.00 

1861 

80.00 

1864 

30.00 

1871 

61.00 

1872 

19.00 

1879 

41.00 

1880 

9.00 

1897 

22.25 

1899 

"   13.15 

1900 

23.84 

1902 

"   12.33 

1904 

24.50 

1907 

Here  are  ten  distinct  refutations  of  the  general  belief. 
Six  of  these  occurred  within  the  recollection  of  the  writer 
and  of  many  others  still  in  the  iron  business,  and  yet,  just 
as  soon  as  the  price  of  iron  sinks  to  very  low  figures  again, 
the  same  belief  will  take  possession  of  the  public  mind, 
and  will  be  maintained  by  the  same  plausible  reason,  that 
"conditions  now  are  different  from  what  they  ever  were 
before."  Conditions  are  always  different  from  what  they 
ever  were  before,  and  always  will  be,  because  the  world 
moves,  and  changes  as  it  moves,  but  the  law  of  supply 
and  demand  has  not  changed  and  never  will.  High 
prices  for  iron  will  return  with  each  general  revival  of  indus- 
tries, just  as  long  as  it  is  impossible  to  supply  a  greatly 
augmented  demand,  when  the  demand  takes  place. 


ILLUSTRATION 


Soon  after  the  beginning  of  the  boom  of  1899,  when 
iron  had  advanced  only  about  $2  per  ton,  against  little  or 
no  advance  in  cost,  the  Vice-President  of  one  of  the  largest 
furnace  companies  producing  iron  for  the  market  called 
upon  a  friend  in  New  York  City.  After  telling  him  of  the 
large  profit  his  company  was  making,  he  said  that  its 
officers  had  decided  to  hold  prices  where  they  were,  and 
prevent  any  further  advance,  by  taking  orders  at  current 
prices  as  far  ahead  as  their  customers  wished  to  contract. 
"But,"  said  his  friend,  "what  will  happen  when  your 
company  and  all  the  other  furnace  companies  have  taken 
orders  for  all  they  can  produce  for  six  months  or  a  year 
ahead,  and  then  it  turns  out  that  several  million  tons 


CYCLIC    DELUSIONS  205 

more  are  needed  by  the  consumers  within  that  time?" 
This  question  was  as  good  as  a  prophecy  for  iron^advanced 
$14  per  ton  instead  of  $2  within  the  year., 

On  page  117  an  account  is  given  showing  how  the 
United  States  Steel  Corporation  in  1901  attempted  to 
check  the  advance  in  steel,  when  it  was  about  65  per  cent, 
above  the  low  price  of  1897,  yet  during  the  next  year 
prices  in  the  general  market  advanced  to  124  per  cent, 
above  the  low  price  of  1897,  although  the  Steel  Corpora- 
tion held  to  the  price  agreed  upon.  The  iron-producers 
not  only  do  not  anticipate  these  abnormal  advances,  but 
previous  to  their  occurrence  they  do  not  believe  them 
possible.  There  are  many  conditions  that  contribute  to 
this  belief.  For  instance,  in  1874,  iron-producers  pointed 
to  the  fact  that  an  iron-furnace  then  made  50  tons  per 
day,  while,  ten  years  earlier,  furnaces  made  but  8  to  18 
tons  per  day.  This  increased  capacity,  they  argued, 
would  prevent  any  abnormal  advance  in  the  future, 
but  the  50-ton  furnaces  were  as  inadequate  for  their 
time  as  the  8  to  18-ton  furnaces  were  for  their  time. 
In  1886  they  reminded  you  that  furnaces  were  then 
producing  200  tons  per  day,  instead  of  50.  In  1897 
they  reminded  you  that  iron-furnaces  were  then  producing 
as  much  as  700  tons  per  day,  and  in  each  case  they  con- 
tended that  this  wonderful  improvement  would  prevent 
iron  ever  again  reaching  abnormally  high  figures.  But 
the  abnormal  prices  have  continued  to  recur,  and  will  continue 
to  recur ,  just  as  long  as  the  conditions  which  produce  them 
continue  to  exist,  and  so  will  the  great  booms  and  depressions. 
Remove  the  cause,  and  the  results  will  disappear. 

As  stated  on  page  204,  we  have  had  ten  refutations  of 
the  oft-recurring  convictions  that  abnormally  high  prices 
will  never  again  occur.  We  may  calculate,  with  substan- 
tial certainty,  that  this  fallacious  conviction  will  come 
again,  unless  the  business  men  of  the  country  take  the 
necessary  time  to  analyze  the  facts  and  realize  the  truth. 
Can  you  find  any  one  to-day  who  will  say  he  believes  we 
will  ever  again  have  an  advance  of  from  100  per  cent,  to 


206    INDUSTRIAL    DEPRESSIONS 

300  per  cent,  in  the  price  of  iron?  Could  you  have  found 
such  a  person  in  1897?  What  is  to  prevent  another  such 
advance?  The  last  advance  was  the  greatest  in  history; 
it  occurred  when  we  were  on  a  gold  basis.  The  only  other 
advance  which  compared  with  it  was  during  the  civil  war, 
when  gold  was  at  an  enormous  premium.  The  causes 
which  produce  these  advances  are  increasing  in  power,  not 
decreasing.  Look  at  the  facts.  From  1890  to  1897  the 
annual  production  of  iron  in  this  country  was  on  a  plane 
of  about  9,000,000  tons;  within  the  next  decade  it  jumped 
to  a  plane  of  about  25,000,000  tons.  Have  we  any  reason 
to  believe  that  the  next  jump  will  not  be  as  great?  Atten- 
tion has  been  called  elsewhere  to  the  fact  that  the  rate  of 
increase  in  iron  production  in  this  country  was  equal  to 
143  per  cent,  in  the  decade  from  1895  to  1905,  as  against 
114  per  cent,  per  decade  in  the  forty-one  years  from  1864 
to  1905.  There  is  nothing  in  these  facts  nor  in  any  of 
our  surroundings  to  indicate  that  the  industries  have 
reached  their  culminating  point.  Just  the  reverse. 
Dr.  Wm.  Kent,  in  "The  Iron  Trade  Review"  of  January 
10,  1907,  states  that,  if  the  future  rate  of  increase  should 
be  but  100  per  cent,  per  decade,  the  production  in  this 
country  will  amount  to  66,000,000  tons  per  annum 
by  1920. 

We  know  that  the  capacity  to  produce  iron  at  the  pres- 
ent time  (April,  1911)  is  in  excess  of  the  demand,  and  in 
all  probability  we  will  rest  content  with  that  knowledge, 
and  when  the  next  boom  comes  the  demand  will  undoubt- 
edly quickly  outstrip  the  supply,  as  heretofore.  Of 
course,  no  one  now  looks  for  any  such  occurrence  to  take 
place,  nor  did  they  ever  look  for  it  in  the  past.  But  it 
has  occurred  already  nine  times. 

Then,  too,  there  are  the  delusive  figures  of  the  "furnace 
capacity"  of  the  United  States.  These  figures  un- 
doubtedly tend  greatly  to  mislead  the  iron-producers  as 
well  as  the  public.  In  April,  1898,  the  furnace  capacity 
of  the  country  was  officially  reported  at  19,081,000  tons 
per  annum,  and  yet  when  the  boom  came  the  following 


CYCLIC    DELUSIONS  207 

year,  and  prices  advanced  to  147  per  cent,  above  zero, 
the  furnaces  were  able  to  produce  only  13,620,000  tons. 
Now,  if  at  the  time  of  the  next  boom  the  claimed  capacity 
to  produce  iron  falls  as  far  short  of  the  actual  capacity  as 
it  did  in  1899,  and  the  usual  increase  in  demand  takes 
place,  it  is  perfectly  apparent  that  we  will  then  have 
another  famine  in  supply  and  another  enormous  advance 
in  the  price  of  iron. 

The  average  stock  of  pig  iron  carried  in  the  United 
States  during  the  last  twenty-five  years  has  been  less  than 
twenty-three  days'  production,  and  it  takes  practically 
a  year  to  build  a  new  furnace.  Furnaces  in  this  country, 
which  run  regularly,  usually  have  their  product  contracted 
for  several  months  ahead,  and  in  ordinary  times  the  tonnage 
thus  contracted  for  supplies  the  wants  of  the  consumers 
for  an  equal  length  of  time;  but  it  is  when  active  times 
come,  when  the  consumers  have  business  enough  to  double 
their  output,  which  it  is  impossible  for  the  producers  to 
do,  that  the  trouble  comes.  No  alarm  is  felt  as  long  as 
the  consumers  can  buy  for  future  delivery,  but  when  it 
becomes  apparent  to  them  that  they  have  bought  all  the 
furnaces  can  make  for  a  given  period,  and  that  this  amount 
is  not  as  much  as  will  be  needed  in  that  period,  then  the 
trouble  commences.  Then  comes  a  sudden  awakening. 
Each  consumer  tries  to  secure  enough  to  supply  his  indi- 
vidual needs,  and,  in  the  wild  scramble  which  results, 
prices  are  carried  up  100  per  cent,  or  more.  It  has  never 
been  in  the  power  of  any  man,  or  any  set  of  men,  to 
prevent  these  abnormal  advances. 

CYCLIC    DELUSION    NO.    2 
"PRICES    WILL    NEVER    GO    SO    LOW    AGAIN" 

Each  time  the  price  of  pig  iron  reaches  a  very  high  point, 
there  comes  a  general  conviction  that  it  will  never  again 
fall  to  very  low  prices.  The  reason  usually  assigned  for 
this  belief  is  that  the  actual  cost  of  production  has  increased 
so  greatly  that  this  enhanced  cost  will  necessarily  sustain 
future  prices  on  a  higher  level;  but  the  very  low  prices 


208    INDUSTRIAL    DEPRESSIONS 

come  again,  notwithstanding  this  oft-repeated  argument, 
The  price  of  iron  dropped: 


From  $70.00  in  1837  to  $22.00 

n!843 

"   52.50 

1847  "  19.00 

1852 

"   42.50 

1854  "  20.00 

1861 

"   80.00 

1864  "  30.00 

1871 

"   61.00 

1872  "  19.00 

1879 

"   41.00 

1880  "  17.75 

1885 

"   21.00 

1887  "   9.00 

1897* 

"   22.25 

1899  "  13.15 

1900 

"   23.84 

1902  "  12.33 

1904 

"   24.50 

1907  " 

Here  are  nine  distinct  refutations  of  this  periodic  delusion, 
six  of  which  occurred  within  the  recollection  of  the  writer 
and  many  others  still  in  the  iron  business.  Before  the 
next  boom  comes,  we  may  witness  the  tenth  refutation  of 
this  delusion.  In  the  past,  iron  has  not  only  usually  gone 
as  low  as  before,  but  in  most  cases  even  lower. 

The  reason  prices  usually  go  as  low  as  before  is  that 
boom  costs,  like  boom  prices,  are  ephemeral.  When  the 
cost  follows  the  price  of  iron  up,  it  is  apt  to  follow  the 
price  of  iron  down.  Enhanced  cost  is  simply  the  sym- 
pathetic advance  in  the  prices  of  labor,  ore,  limestone, 
fuel,  freights,  royalties,  etc.  The  same  conditions  which 
carry  iron  down  carry  these  down.  All  go  abnormally 
low,  as  a  result  of  their  having  gone  abnormally  high. 
Extremes  beget  each  other.  "The  farther  the  pendulum 
swings  to  the  right,  the  farther  it  will  swing  to  the 
left." 

The  reason  prices  usually  go  lower  than  before  is  that 
the  economies  and  constant  improvements  in  the  manu- 
facture of  iron  in  the  United  States  have  thus  far  put  the 
normal  cost  of  iron,  in  hours  of  labor,  on  a  lower  level  each 
decade,  and  on  the  down  grade  of  an  industrial  depression 
there  is  usually  no  permanent  halt  until  this  lower  level 
is  reached.  Iron  was  produced  in  Alabama  in  1889  at  a 
cost  of  about  $9  per  ton,  in  furnaces  which  then  turned 

*  Bessemer  pig  iron. 


CYCLIC    DELUSIONS  209 

out  from  ninety  to  a  hundred  tons  per  day.  This  was  the 
record  of  low  cost  up  to  that  date.  Through  improved 
methods  the  same  furnaces,  nine  years  later,  were  produ- 
cing 175  to  225  tons  per  day,  at  a  cost  of  about  $6  per  ton. 
There  is  no  reason  to  believe  that  the  limit  of  this  tendency 
to  a  larger  yield  per  capita  each  decade  has  been  reached 
in  the  United  States.  In  other  words,  it  is  difficult  to 
believe  that  improvements  in  manufacture  have  stopped. 
As  to  the  supply  of  raw  materials,  we  have  only  to  say, 
that  to  the  writer's  personal  knowledge  the  cry  of  limited 
minerals  has  been  raised  for  more  than  forty  years,  yet, 
through  new  discoveries,  each  decade  shows  a  larger 
known  supply.  Thus  far,  we  have  merely  "  scratched 
the  surf  ace. "  We  know  little  of  what  is  within  a  thousand 
feet  of  the  surface. 

During  the  long  years  of  depression  which  follow  a 
boom,  the  market  price  of  iron  is  almost  continuously 
made  by  the  weak  furnace  companies,  not  by  the  rich 
ones.  If  the  producers  were  all  rich,  and  all  able  to  hold 
their  product  until  the  consumers  needed  it,  it  might  be 
different;  but  there  are  always  some  weak  furnace  com- 
panies, and  they  force  sales  when  they  need  money,  whether 
the  consumers  are  ready  to  buy  or  not.  To  do  this,  they 
must  reduce  prices  until  they  are  so  low  as  to  be  induce- 
ment for  some  one  to  buy  in  advance  of  his  needs.  These 
forced  sales  make  the  market,  very  largely,  all  through  the 
dull  years.  The  rich  furnace  companies  must  meet  these 
prices,  or  hold  what  they  make.  What  they  usually  do  is 
to  meet  them,  and  comfort  themselves  with  the  theory  that, 
when  the  needy  ones  are  driven  to  the  wall,  the  strong 
ones  will  be  able  to  control  prices;  but  this  theory  of 
"the  survival  of  the  fittest"  develops  more  weak  ones  each 
year,  for  some  that  were  strong  at  the  start  gradually 
become  weak,  and  so,  in  long  periods  of  depression,  there 
have  always  been  enough  weak  ones  to  keep  prices  down 
during  the  entire  dull  period.  Sometimes,  conditions 
become  so  desperate  that  various  means  are  devised  for 
restricting  production.  Nothing  avails,  however,  and 


210    INDUSTRIAL    DEPRESSIONS 

the  distress  continues,  while  furnace  after  furnace  drops 
out  of  the  race  until  there  comes  another  general  revival 
of  business.  Then  the  furnace  capacity  is  found  to  be  so 
far  short  of  the  new  rate  of  demand  that  another  abnor- 
mal advance  cannot  possibly  be  prevented. 

The  existence  of  the  great  consolidations  is  another 
condition  often  cited  in  late  years  as  a  reason  that  prices 
will  not  again  go  as  low  as  in  the  past.  The  great  corpora- 
tions may  postpone  the  decline  in  prices  for  a  time,  but, 
sooner  or  later,  natural  laws  will  assert  themselves.  The 
power  of  the  great  corporations  is  as  nothing  when  it  comes 
in  conflict  with  natural  conditions.  The  price  went  down 
in  Germany,  in  1891,  although  prices  and  sales  were  entirely 
controlled  by  a  powerful  syndicate  and  the  entire  production 
was  sold  for  two  years  in  advance.  Syndicates  and  con- 
solidations may  put  the  price  of  articles  up,  and  hold  them 
up,  but  they  cannot  compel  individuals  to  consume  these 
articles,  and,  if  not  consumed  in  sufficient  quantities  to 
keep  all  the  breadwinners  employed,  prices  will  go  down. 
There  is  no  human  force  on  earth  so  powerful  as  a  sponta- 
neous thought  which  gains  lodgment  in  the  minds  of  a 
great  aggregation  of  individuals.  Before  such  a  force, 
the  power  of  syndicates  and  great  corporations  is  as  noth- 
ing, and  must  succumb,  just  as  the  power  of  empires  and 
kingdoms  has  gone  down  before  this  great  force. 

On  page  117  we  have  given  an  account  of  how  the 
United  States  Steel  Corporation  made  a  heroic  effort  to 
stop  the  advance  in  the  prices  of  steel  products,  when  they 
had  reached  about  65  per  cent,  above  the  low  prices  of 
1897,  and  yet,  although  it  had  effect  for  a  time,  they 
ultimately  reached  124  per  cent,  above  the  1897  prices. 
Then  again,  in  1908,  after  prices  had  fallen  greatly,  we 
saw  how  the  principal  steel-producers  endeavored  to 
prevent  prices  going  lower;  in  this,  too,  they  succeeded 
for  a  time,  but  later  on  gave  it  up  as  a  hopeless  task. 
The  great  corporations  have  wonderful  power  in  many 
ways,  but  they  are,  at  the  most,  but  a  part  of  the  "  manu- 
facturers" of  whom  we  spoke  on  page  125.  The  final 


CYCLIC    DELUSIONS 

power  is  not  with  them.  They  may,  at  times,  by  their 
acts,  accelerate  or  retard  prosperity  or  depression,  but 
at  other  times,  even  this  power  may  be  beyond  their  con- 
trol. The  final  power  which  creates  maximum  prosperity, 
or  checks  it,  rests  with  the  purse-string  holders. 


CHAPTER    XIX 

RESUME 

THE  object  of  this  book  is  to  disclose,  and  make  recog- 
nizable, what  analysis  has  revealed  as  the  manifest 
cause  of  that  class  of  industrial  depressions  which,  in  late 
years,  have  come  to  the  manufacturing  nations  in  the 
absence  of  any  universally  recognized  cause. 

Having  had  this  one  object  in  view,  we  may  have  given 
so  much  space  to  some  special  subjects,  and  so  little  to 
others,  as  to  have  given  some  wrong  impressions.  For 
instance,  from  the  commencement  to  the  end  of  this  book, 
iron  has  been  made  very  prominent.  This  was  partly 
because  iron  is  the  acknowledged  basis  of  the  industrial 
system,  and  partly  because  it  is  the  acknowledged  "  barom- 
eter of  trade";  and  having  been  recognized  as  such  for 
so  long  a  time,  the  statistics  concerning  it  are  so  reliable, 
and  the  records  so  complete,  that  it  is  practically  the  one 
preeminently  trustworthy  gauge  of  everything  connected 
with  the  industries.  Indeed,  without  the  available  facts 
in  relation  to  iron,  it  is  hard  to  conceive  how  we  could 
have  arrived  at  the  unknown  cause  of  these  mysterious 
industrial  depressions,  for  we  have  had  its  fluctuations 
in  price  and  in  volume  of  consumption  as  a  witness,  not 
only  of  industrial  conditions  at  different  periods,  but  of 
the  comparative  conditions  and  progress  of  the  industries 
in  different  nations.  It  has,  in  fact,  been  to  our  analysis 
what  the  magnetic  force  is  to  the  mariner.  It  must  not 
be  inferred,  however,  that  iron  is  given  any  undue  weight 
when  it  is  considered  in  other  ways — for  instance,  as  affect- 
ing the  cost  of  construction.  Its  effect  in  each  particular 
structure  under  consideration  is  only  in  the  proportion 
that  the  enhanced  cost  of  the  amount  of  iron  used  in  that 

212 


RESUME  213 

structure  bears  to  the  total  enhanced  cost  of  all  the 
other  materials  and  forces  used  and  employed,  such  as 
labor,  all  kinds  of  construction  materials,  architects'  fees, 
contractors'  profits,  freight,  and  a  host  of  smaller 
things. 

A  term  we  have  used  all  through  the  latter  part 
of  this  book,  and  which  we  explained  at  the  start  was 
used  tentatively,  is  "  Investment  Construction."  This 
is  simply  a  name  we  selected  to  convey  an  idea.  We 
might  have  said  " extra  construction,"  or  "optional  con- 
struction"; either  term  would  have  answered  the  pur- 
pose, but  investment  construction  seemed  more  nearly 
to  describe  the  particular  class  of  construction  we  referred 
to.  "  Far-seeing  investors,"  too,  seemed  to  be  a  most 
appropriate  name  for  the  class  of  shrewd  individuals  who 
always  make  contracts  for  large  amounts  of  construction 
when  prices  are  very  low,  and  who  stop  making  such  con- 
tracts as  soon  as  prices  make  any  material  advance. 
There  is  no  more  question  that  such  a  class  exists  than 
there  is  that  rich  and  poor  exist.  In  fact,  the  very  rich 
class  is  probably  largely  the  result  of  the  acts  of  this  class 
of  far-seeing,  shrewd  investors.  We  do  not  claim  that 
this  class  is  responsible  for  the  entire  volume  of  the  con- 
structive contracts  which  bring  booms;  far  from  it,  for 
the  largest  part  of  construction  (as  we  have  clearly  de- 
monstrated) goes  on  in  the  most  depressed  times,  as  well 
as  the  most  prosperous.  We  claim,  however,  and  think 
we  have  fairly  demonstrated,  that  enough  additional 
construction  is  contracted  for  by  this  class  in  the  low- 
priced  period  to  carry  the  resultant  demand  for  labor 
and  materials  far  beyond  the  capacity  of  the  country  to 
fill  on  contract  time,  and  that  the  making  of  this  class  of 
contracts  falls  off  largely  in  volume  as  soon  as  prices 
make  any  considerable  advance.  To  such  an  extent  is 
this  true  that,  when  the  construction  they  provide  for  is 
completed,  there  is  not  sufficient  demand  left  to  absorb 
the  labor  and  materials  available,  and  depression  follows. 
We  do  not  claim  that  all  investment  construction  is  made 


214    INDUSTRIAL    DEPRESSIONS 

at  low  prices,  nor  during  the  low-priced  period:  there 
are  particular  cases  of  legitimate  investment  construction 
that  are  planned  and  carried  out  at  boom  prices,  which 
are  profitable  at  the  very  start,  because  of  special  condi- 
tions. For  example,  a  new  invention,  a  discovery  of 
any  kind,  a  sudden  and  widespread  demand  for  a  particu- 
lar product,  or  other  reasons,  may  justify  construction, 
at  times,  which  may  result  in  so  great  a  margin  of  profit 
that  even  the  doubling  of  the  price  of  construction  would 
be  a  mere  trifle.  We  saw  an  example  of  this  in  the  plants 
constructed  for  the  tremendous  output  of  bicycles  a  few 
years  ago;  we  have  evidence  of  it  now  in  the  huge  output 
of  automobiles,  and  may  see  evidence  of  it  soon  in  a 
surprising  output  of  aeroplanes.  One  can  imagine  also 
that  some  new  labor-saving  device,  on  which  there  was  a 
very  large  margin  of  profit,  might  be  put  through  regard- 
less of  cost.  But  these  are  exceptions  that  can  easily  be 
explained,  even  when  large  contracts  are  made  for  them 
during  periods  when  there  are  no  contracts  made  for  the 
class  of  construction  that  we  include  in  this  book  under 
the  term  investment  construction.  What  we  include  under 
the  tentative  term  investment  construction  is  that  for  which 
contracts  are  not  entered  into  at  all  times.  It  is  the  class 
of  construction  which  is  entered  into  with  the  view  of 
earning  a  moderate  rate  of  interest  for  long  periods  of 
time,  and  a  very  small  difference  in  the  prospective  rate 
of  interest  to  be  derived  has  a  wonderful  influence  in 
loosening  or  tightening  the  strings  to  the  long  purses 
affected.  It  includes,  chiefly,  the  great  enterprises  owned 
and  paid  for  by  the  far-seeing  ones  who  hold  the  strings 
to  the  great  majority  of  the  long  purses  of  the  country. 
That  this  class  is  a  very  large  and  powerful  one,  is  not 
only  evidenced  by  the  boom  itself,  but  by  the  further  fact 
that,  each  time  it  takes  hold,  the  industries  of  the  country 
are  lifted  permanently  to  a  higher  plane.  On  page  108 
will  be  found  a  table  that  demonstrates  that  this  class 
has  distinctly  emphasized  its  existence  on  seven  different 
occasions  within  the  last  sixty  years.  Let  there  be  no 


RESUME 

doubt  in  the  minds  of  any  one  about  the  existence  of  this 
class  or  of  its  great  power.  It  exists  as  certainly  as  the 
spendthrift  class  exists.  There  is  never  a  panic,  when 
large  amounts  of  valuable  securities  are  sold  for  "any 
price  they  will  bring,"  that  this  class  of  far-seeing  ones 
is  not  found  to  have  purses  long  enough  to  absorb  all 
that  is  offered.  It  is  wonderful  how  inexhaustible  these 
purses  are.  No  panic  has  ever  discovered  their  size,  and 
the  strings  to  them  loosen  to  low-priced  securities  and 
low-priced  construction  with  equal  facility. 

Let  it  be  understood,  also,  that  it  has  not  been  claimed 
in  this  book  that  all  industrial  depressions  are  the  effect 
of  high  prices  of  construction.  On  the  contrary,  we  have 
given  descriptions  of  many  that  came  from  financial 
causes,  and  recognized  the  fact  that  some  have  come  from 
war,  pestilence,  famine,  bad  legislation,  political  upheavals, 
and  other  great  calamities;  but  when  they  came  from 
such  external  causes,  their  origin  is  universally  recognized 
and  acknowledged.  Many  of  these  other  causes,  however, 
have  been  conspicuously  before  the  public  for  centuries, 
and  remedies  have  been  applied  which  have  mitigated 
their  severity.  Industrial  depressions,  caused  by  a  de- 
rangement within  the  industries  themselves,  are  a  new 
malady,  and  no  remedies  have  been  discovered  for  them. 
This  is  not  to  be  wondered  at,  for  the  industries,  after  an 
existence  of  secondary  importance  and  magnitude  for 
thousands  of  years,  have  suddenly  increased  to  stupendous 
proportions,  and  the  industrial  maladies  that  have  de- 
veloped with  this  sudden  growth  are  many.  Finance  and 
commerce,  which  necessarily  increased  to  keep  pace  with 
the  industries,  have  also  suffered  from  new  maladies  that 
have  developed  within  these  systems.  Some  of  the  mala- 
dies which  have  affected  commerce  have  been  exposed 
and  measures  taken  to  correct  or  alleviate  their  harmful 
effects  —  the  work  of  the  Interstate  Commerce  Commis- 
sion is  an  instance  of  this.  The  government  has  also 
made  extensive  investigations  to  determine  the  most 
effectual  way  to  correct  or  alleviate  the  maladies  that 


216    INDUSTRIAL    DEPRESSIONS 

have  developed  in  the  financial  system.  But  the  indus- 
trial system  has  developed  a  malady  that  is  particularly 
its  own  and  direful  in  its  effects.  The  reason  nothing 
has  been  done  to  correct  or  alleviate  its  severity  is  simply 
because  the  disease  has  not  been  correctly  diagnosed  and 
understood.  Government  commissions,  economic  soci- 
eties, and  individuals  have  sought  to  determine  the  cause 
of  this  mysterious  malady,  but  all  have  failed,  simply 
because  all  have  made  their  investigations,  partly  or 
entirely,  by  the  synthetic  method,  which  allows  the 
introduction  of  any  and  all  fallacies.  For  instance,  in  this 
mysterious  class  of  depressions,  which  we  have  shown 
result  from  purely  industrial  causes,  a  large  share  of  the 
causes  claimed  for  them  have  been  purely  agricultural, 
commercial,  or  financial.  Of  course,  every  depression  that 
comes  to  any  of  the  three  systems  last  named  must 
affect  the  industries  secondarily,  but  to  admit  any  of  their 
causes  to  consideration  in  a  search  for  the  direct  cause  of 
the  class  of  mysterious  depressions  which  resulted  from 
industrial  causes  only,  must  necessarily  be  fatal  to  the 
search.  Then,  too,  the  particular  class  of  depressions  in 
question  always  follow  a  boom,  hence  everything  which 
occurs  during  a  boom  can  afterwards  be  claimed  as  a 
cause  of  the  depression,  and  get  an  apparent  confirmation 
in  the  depression  that  follows.  Thus  the  free  use  of  the 
synthetic  method  of  investigation  has  defeated  all  the 
efforts  made  to  identify  the  cause  of  this  serious  class  of 
depressions,  and  in  consequence  nothing  has  been  done  by 
the  government,  or  any  other  agency,  to  correct  or  alle- 
viate their  direful  effects.  This  book,  as  far  as  possible, 
deals  exclusively  with  the  class  of  depressions  which  come 
as  the  effect  of  abnormally  high  prices  of  construction, 
and  the  fact  that  as  little  space  as  possible  is  given  to  all 
classes  of  depressions  outside  of  that  one  must  not  be 
understood  as  an  intimation  that  we  claim  that  other 
depressions  do  not  exist,  nor  that  we  claim  that  they  have 
not  in  the  past,  or  may  not  in  the  future,  continue  to  bring 
disastrous  seasons  of  depression  to  the  industries,  but  that, 


RESUME  217 

when  they  do,  the  cause  will  be  known  and  recognized, 
as  in  the  past. 

We  recognize  the  due  influence  of  everything  which 
tends  to  increase  or  decrease  the  volume  of  the  industries. 
We  claim,  however,  that  after  a  country  has  become 
chiefly  manufacturing,  no  combination  of  favorable  in- 
fluences has  been  strong  enough  to  develop  a  boom, 
except  on  low  prices  of  construction,  and  that  after  abnor- 
mally high  prices  develop,  no  combination  of  favorable 
influences  has  been  strong  enough  to  keep  the  boom  going 
beyond  the  time  necessary  to  complete  the  volume  of 
extra  construction  made  up  of  old,  low-priced  contracts. 
The  necessities  which  come  with  war  have  at  times  pro- 
longed a  boom,  but  only  as  long  as  those  necessities 
continued. 


CHAPTER  XX 

HOW  CAN  THESE  MYSTERIOUS  DEPRESSIONS  BE 
PREVENTED?  THE  REMEDY 


remedy  we  suggest  is  the  inauguration  by  the 
national  government  of  a  system  for  collecting  and 
publishing  monthly  all  pertinent  information  in  relation 
to  the  existing  volume  of  construction  under  contract  for 
future  months,  and  all  pertinent  information  in  relation 
to  the  capacity  of  the  country  to  produce  construction 
materials  to  meet  the  total  demand  thus  indicated. 

As  noted  in  various  parts  of  this  volume,  particularly 
on  page  122,  it  is  the  contracts  for  future  construction  in 
excess  of  the  country's  capacity  to  supply  the  materials 
to  fill  them  that  later  on  create  the  excessive  demand  for 
construction  materials.  It  is  this  demand,  which  cannot 
possibly  be  supplied,  that  in  turn  carries  prices  up  to 
figures  which  eventually  check  the  volume  of  contracts 
for  construction;  thus  bringing  into  action,  unknown  to 
the  public,  the  microbe  which  in  due*  time  results  in 
industrial  depression. 

Now  it  must  be  admitted  that,  should  the  producers  of 
construction  materials  receive  notice  from  a  reliable 
source  that  all  of  the  construction  materials  of  a  certain 
description  that  could  be  produced  within  a  given  time 
were  covered  by  the  volume  of  construction  indicated 
by  existing  contracts,  they  would  cease  to  make  fur- 
ther contracts  for  such  materials.  It  must  be  admitted, 
also,  that,  if  they  knew  that  there  was  a  demand 
for  a  large  additional  quantity  of  such  materials,  they 
would  increase  their  capacity  in  order  to  secure  what  they 
could  of  this  offered  business.  It  must  also  be  admitted 
that,  if  the  capacity  were  increased  sufficiently  promptly 

218 


THE    REMEDY  219 

and  fully  to  supply  the  additional  demand,  there  would 
be  no  such  abnormal  advances  in  the  prices  of  these 
materials  as  have  frequently  occurred  in  the  past. 

What  the  industries  have  suffered  from  most  in  the  past  is 
the  lack  of  knowledge  as  to  the  volume  of  construction  under 
contract  for  the  future,  and  the  capacity  of  the  country  to 
furnish  construction  materials  in  the  future. 

What  the  industries  most  need,  therefore,  is  monthly  in- 
formation of  the  future  demand  for  construction  materials 
as  far  ahead  as  construction  contracts  are  entered  into,  and 
monthly  information  of  the  capacity  of  the  country  to  pro- 
duce  construction  materials  as  far  ahead  as  the  increase  or 
decrease  in  capacity  can  be  known. 

The  statistics  necessary  to  carry  out  the  proposed  plan 
should  be  gathered  directly  by  a  department  of  the  national 
government,  whether  on  the  plan  now  pursued  in  gather- 
ing statistics  of  the  crops,  or  through  the  recent  act 
authorizing  the  government  to  call  for  reports  from  the 
corporations,  is  a  matter  which  can  be  decided  when  the 
other  details  of  the  plan  are  determined  upon. 

Some  new  laws,  or  amendment  to  present  laws,  might 
possibly  be  required  to  put  the  system  into  execution. 
It  would  not  only  be  necessary  to  guard  against  sham 
building  permits,  and  to  require  the  initial  information 
at  the  time  building  permits  are  taken  out,  but  to  require 
on  each  recorded  contract  monthly  reports  of  the  per- 
centage of  work  completed,  and  the  percentage  yet  to  be 
executed,  hi  order  that  any  change  in  the  volume  of 
future  demand,  or  any  change  in  the  capacity  to  produce, 
may  be  corrected  in  the  monthly  reports  furnished  to  the 
public. 

It  would  be  desirable  to  have  the  statistics  as  complete 
as  possible,  but  it  would  not  be  necessary  to  include  small 
construction  enterprises,  repairs,  etc.,  nor  would  it  be 
necessary  to  include  statistics  from  remote  sections;  for 
after  some  experience  an  approximate  estimate  of  the 
volume  of  the  whole  construction  could  be  made  from  the 
statistics  of  the  major  part. 


220    INDUSTRIAL    DEPRESSIONS 

Among  the  large  manufacturers,  a  very  considerable 
amount  of  such  information  is  already  collected,  in  a 
private  way,  and  is  more  or  less  widely  disseminated  by 
their  salesmen  and  others.  Moreover,  for  several  years 
there  has  existed,  at  least  among  the  iron  and  steel  manu- 
facturers, an  attitude  of  great  frankness  in  furnishing 
such  information  to  each  other.  It  is  probable  that 
nearly  every  large  manufacturer  of  iron  and  steel  knows, 
at  any  time,  approximately  what  tonnages  have  been  con- 
tracted for  by  the  other  manufacturers,  and  at  approxi- 
mately what  prices.  Most  of  the  large  construction 
contracts,  both  public  and  private,  are  made  either  by 
public  letting,  or  at  least  to  the  lowest  bidder,  from  a 
selected  list  of  manufacturers,  who  have  been  asked  to  bid 
and  have  been  furnished  the  plans  and  specifications  on 
which  to  make  these  bids.  Thus  the  tonnages  under 
contract,  and  the  amounts  of  construction  contemplated 
each  month,  are  pretty  well  known  to  many  persons 
already.  Even  the  prices  at  which  the  work  has  been  let 
are  made  public,  or  can  be  approximated  closely  by  those 
in  the  same  line  of  business. 

These  facts  show  the  existing  desire  on  the  part  of 
manufacturers  to  get  what  information  they  can  to  guide 
them  as  to  the  future,  but  it  also  shows  how  imperfect 
and  useless  information  gathered  by  private  means,  and 
in  such  a  manner,  can  be;  for  if  such  information  had  been 
of  real  value,  the  iron-  and  steel-producers  would  have  run 
their  plants  to  full  capacity  in  the  dull  period  of  1904,  in 
which  case  we  should  not  have  been  able  to  use  the  illus- 
tration we  give  on  page  226,  which  illustration  shows  that 
even  the  manufacturers  who  possessed  this  information 
gained  no  idea  from  it  of  what  the  future  had  in  store  for 
them.  If  the  manufacturers  who  possessed  the  informa- 
tion had  suspected  the  truth  and  acted  upon  it,  it  would 
have  benefited  these  few,  but  no  national  benefit  would 
have  resulted.  To  have  produced  such  a  result,  it 
would  have  been  necessary  that  the  whole  people  should 
know  what  was  coming.  What  could  an  army  accomplish, 


THE    REMEDY 

if  only  a  small  part  of  the  individuals  composing  it  were 
organized,  officered,  and  drilled,  while  the  great  majority 
were  permitted  to  act  as  each  individual  saw  fit!  The 
information  needed  can  no  more  be  gathered  by  private 
means  than  can  the  United  States  Census.  Such  infor- 
mation, to  be  effective,  must  be  known  to  the  whole 
people,  and  they  must  know  that  it  is  compiled  from 
sworn  statements  made  to  the  government.  Anything 
less  reliable  and  comprehensive  than  this  would  be  of 
little  value. 

The  unfilled  orders  of  the  United  States  Steel  Corporation 
comprise  about  one  half  of  the  unfilled  steel  orders  of  the 
country.  The  volume  of  these  orders  is  the  best  indication 
we  now  have  of  what  the  future  business  of  the  country 
will  be.  But  valuable  as  it  is,  it  is  entirely  inadequate. 
What  the  country  needs  for  its  intelligent  guidance  is  the 
whole  volume  of  the  unfilled  orders  of  all  the  important 
products  that  enter  into  construction.  The  existing  con- 
ditions of  supply  and  demand  of  steel  may  differ  widely 
from  the  existing  conditions  of  supply  and  demand  of 
other  construction  materials.  A  short  supply  in  but  one 
product  may  hold  back  the  whole  volume  of  construction. 
We  need  official  information  of  the  prospective  supply  and 
demand  of  all  construction  materials;  not  only  how 
much  of  each  is  needed,  but  when  it  is  needed;  not  only 
how  much  the  signed  contracts  call  for,  but  an  official 
and  expert  estimate  of  what  additional  percentage  will 
probably  be  required,  for  such  current  business  as  is 
usually  executed  without  the  preliminary  of  written  con- 
tracts, as,  for  example,  the  work  of  repairs,  replacements, 
and  necessary  enlargements.  These,  although  small  in 
each  individual  case,  make  up  a  large  amount  in  the 
aggregate.  This  last-named  class  can  be  estimated  very 
closely  after  a  few  years  of  experience. 

When  the  constructive  business  of  the  country  is  thus 
systematized,  its  aggregate  results  for  a  decade  will  be 
as  different  as  the  results  of  a  trained  and  disciplined  army 
are  different  from  the  results  of  a  mob.  When  we  attain 


INDUSTRIAL    DEPRESSIONS 

this  new  basis,  we  will  be  on  a  foundation  from  which  we 
can  contend  more  successfully  for  our  share  of  the  outside 
trade  of  the  world.  Heretofore,  our  growth  in  many 
branches  of  the  foreign  trade  has  not  been  permanent. 
It  was  only  when  our  prices  were  low  that  we  could  win 
any  large  share  of  trade  in  such  commodities  as  pig  iron, 
for  instance;  and  when  the  next  boom  occurred,  our  prices 
advanced  so  much  more  than  they  did  in  the  other 
manufacturing  countries  that  our  gain  was  entirely  lost. 
This  has  occurred  now  repeatedly  within  the  last  fifty 
years. 

High  prices  are  of  no  benefit  to  a  country.  The  first 
producers  to  advance  prices  may  get  some  benefit  for  a 
time,  but  it  is  not  long.  To  advance  the  price  of  any 
product  is  almost  certain  to  advance  the  price  of  the  raw 
materials  and  labor  which  enter  into  that  product.  The 
wage-earners  of  the  United  States  enjoy  a  greater  amount 
of  comforts  than  the  wage-earners  of  other  countries,  not 
because  of  higher  wages,  but  because  they  produce  so 
much  more  per  capita.  On  page  25  it  was  made  clear 
that  doubling  the  pay  of  producers  did  not  double  their 
comforts.  The  only  way  to  double  their  comforts  is  to 
double  products  at  the  same  pay.  The  shoemaker  who 
could  sell  a  pair  of  boots  for  $600  in  confederate  days, 
and  was  obliged  to  pay  $20  for  a  cup  of  coffee,  lived 
no  better  and  enjoyed  no  more  comforts  than  when  he 
sold  boots  at  $10  a  pair.  What  the  business  of  any 
country  should  strive  to  bring  about  is  steady  prices, 
and  high  prices  are  never  steady.  The  remedy  we  have 
proposed  should  have  a  powerful  influence  in  preventing 
abnormal  advances  in  the  price  of  construction  materials. 
We  have  had  ample  experience  to  prove  that  it  cannot  be 
accomplished  without  some  intelligent  preparation.  The 
effort  made  by  the  United  States  Steel  Corporation  to 
stop  the  advance  in  the  prices  of  steel  in  1901  was  an 
evidence  of  a  broad-minded  spirit  and  a  commendable 
purpose  on  the  part  of  its  management,  but  it  was  also 
evidence  of  how  powerless  even  the  greatest  of  all  pro- 


THE    REMEDY 

ducers  is  to  combat  natural  tendencies.  It  was  trying  to 
prevent  the  natural  result  of  an  oversold  market.  The 
only  possible  way  to  prevent  such  a  result  is  to  prevent 
the  cause. 

The  remedy  we  propose  will  probably  be  only  the  first 
step;  other  improvements  and  advances  will  undoubt- 
edly follow.  The  industries  to-day  are  as  much  in  the 
dark  as  medical  science  was  before  the  microbe  of  disease 
was  discovered.  That  discovery  simply  furnished  medi- 
cal science  with  a  sound  basis  from  which  to  make  real 
progress.  And,  as  a  result,  new  remedies  for  physical 
diseases  are  now  constantly  being  discovered.  The 
remedy  we  propose  for  industrial  depressions  may  be 
nothing  more  than  a  first  step  from  a  sound  basis.  When 
the  system  of  collecting  information  of  the  volume  of 
construction  materials  involved  in  signed  contracts  is 
established,  the  way  may  be  opened  for  acquiring  reliable 
data  antedating  signed  contracts.  Many  of  the  con- 
structive enterprises  that  involve  large  quantities  of 
materials  are  fully  decided  upon  a  long  time  before  con- 
tractors are  asked  to  bid  upon  them;  of  these  the  govern- 
ment could  gather  and  publish  information  a  long  time 
before  contracts  are  executed  for  them.  Already  a  very 
successful  business  of  this  nature  is  carried  on  in  New 
York  and  Chicago  by  private  enterprise.  The  United 
States  Department  of  Agriculture  became  vastly  more 
valuable  to  the  nation  when,  hi  addition  to  its  published 
statistics  of  the  past,  it  gathered  and  published  infor- 
mation on  which  reliable  forecasts  could  be  made  of  the 
future.  The  United  States  Department  of  Commerce  and 
Labor  is  well  fitted  to  gather  and  publish  these  reports 
which  are  so  sorely  needed  by  the  industrial  workers 
of  the  nation.  The  unfilled  orders  of  the  United  States 
Steel  Corporation  necessarily  do  not  reach  the  public  until 
some  weeks  after  the  contracts  are  signed,  while,  as  noted 
above,  the  data  of  the  largest  enterprises  may  be  known 
weeks  before  contracts  are  signed.  Let  us  analyze  this 
matter,  for  it  gives  some  idea  how  comprehensive  and 


INDUSTRIAL    DEPRESSIONS 

valuable  these  proposed  government  reports  might  be 
made. 

By  referring  to  Appendix  Q,  it  will  be  seen  that  the 
high  point  of  unfilled  orders  of  the  United  States  Steel 
Corporation  was,  on  December  31,  1906,  8,489,718  tons. 
It  will  be  seen,  also,  that  this  was  an  accumulation  from 
September  30,  1904,  when  it  was  but  3,027,436  tons; 
the  quarterly  gain  and  loss  being  as  follows: 

Gain  Loss 

To  Dec.  31,  1904 1,668,767 

"   Mar.  30,  1905 901,357 

"  June  30,     "     —  767,905 

"  Sept.  30,     "     1,035,722 

"  Dec.  31,     "     1,739,709 

"   Mar.  31,  1906 —  586,374 

"  June  30,     "     —  209,123 

"  Sept.  30,     "     1,127,295 

"  Dec.  30,     "     552,834 

Total  Gain 7,025,684  1,563,402 

Total  Loss 1,563,402 

Net  Gain 5,462,282 

In  analyzing  this,  it  must  be  borne  in  mind  that  the 
making  of  a  contract  for  any  large  constructive  enterprise 
takes  time  for  each  step.  For  instance,  starting  at  the 
point  where  the  plans  and  specifications  are  completed 
and  handed  to  contractors  with  request  for  bids  on  the 
work,  the  contractor  would  first  figure  out  the  quantity 
of  material  the  work  would  require;  this  might  take  from 
one  to  several  weeks.  He  would  then  ask  producers  for 
bids  on  the  materials;  this  would  involve  more  time. 
When  these  bids  were  received,  he  would  figure  out  what 
it  would  cost  him  to  complete  the  enterprise;  this  would 
consume  more  time.  To  this  he  would  add  the  profit  he 
wished  to  realize,  draw  up  his  bid,  and  present  it  to  the 
prospective  owners,  involving  another  lapse  of  time. 
Considerable  time  would  be  required  by  the  prospective 
owner  for  consideration  and  comparison  of  the  different 
bids.  When  these  matters  were  adjusted,  and  the  con- 
tract awarded,  the  successful  bidder  would  proceed  to 


THE    REMEDY 

close  his  contracts  with  the  material  men.  When  this 
was  done,  the  Steel  Corporation  would  enter  on  its  books 
such  portion  of  the  order  as  was  received  by  it.  The 
aggregate  time  required  by  these  various  negotiations 
would  amount  to  several  weeks.  Now  the  gain  of  1,668,- 
767  tons  on  December  31,  1904,  included  all  increase  in 
the  unfilled  orders  from  September  30  to  December 
31,  of  that  year,  and  as  the  Steel  Corporation,  at  that 
time,  published  its  unfilled  orders  but  once  hi  three 
months,  it  was  all  the  way  from  one  day  to  ninety-one 
days  after  the  contract  was  closed  before  the  information 
reached  the  public.  Now  add  the  time  consumed  in  this 
last  act  to  whatever  time  may  have  been  estimated  for 
the  five  acts  first  described,  and  it  will  be  observed  that 
from  the  time  of  naming  price  on  materials  to  the  time  of 
publication  of  the  unfilled  orders  of  the  Steel  Corporation 
is  not  a  matter  of  weeks,  but  a  matter  of  months.* 

The  commencement  of  a  boom  is  always  marked  by  the 
closing  of  contracts  for  a  large  volume  of  construction; 
nearly  everything  under  negotiation  being  affirmatively 
decided  upon  on  account  of  the  advancing  tendency  of 
prices.  But  mark  the  fact  that  they  are  almost  univer- 
sally on  the  prices  given  a  long  time  before.  If  prices 
were  not  thus  held  open,  great  confusion  would  result,  for 
if  the  manufacturers  of  material  were  at  liberty  to  put 
up  their  prices  before  the  contract  was  awarded,  each 
advance  in  price  would  require  the  whole  proceeding 
described  above  to  be  set  aside  and  all  gone  over  again. 

The  system  proposed  is  entirely  practicable,  and  would 
involve  little  or  no  extra  trouble  or  expense  to  individuals. 
When,  for  instance,  a  contractor  bids  on  constructive 
work,  he  must,  for  his  own  purposes,  necessarily  ascertain 
the  amount  of  iron,  steel,  lumber,  brick,  lime,  cement, 
etc.,  that  will  be  involved  in  its  execution,  and  hi  what 

*  Since  above  was  written  the  Steel  Corporation  have  commenced  to 
report  unfilled  orders  monthly  instead  of  quarterly,  which  shortens  the 
time  of  this  one  act  two  months,  but  still  leaves  the  delay  a  matter  of  several 
months  on  large  enterprises. 


INDUSTRIAL    DEPRESSIONS 

months  these  materials  will  be  required.  Thus  an 
accurate  knowledge  of  the  quantities  and  time  of  delivery 
of  the  materials  for  each  contract  could  be  furnished,  at 
the  time  the  building  permit  was  applied  for,  without  extra 
trouble  or  expense.  Then,  again,  it  is  already  customary 
to  keep  a  record  of  the  percentage  of  progress  on  all 
large  constructive  works.  It  is  by  such  records  that 
payments  for  completed  work  are  made  from  time  to 
time,  or  insurance  is  effected.  Thus,  this  additional  in- 
formation could  be  furnished  from  month  to  month,  as 
the  work  progresses,  without  extra  trouble  or  expense. 
The  additional  expense  to  the  whole  people  through  their 
government  would  be  infinitesimal  in  comparison  with 
the  benefit  it  would  be  to  the  whole  people. 

OBJECTS   OF  THE    PROPOSED   REMEDY 

The  chief  objects  of  the  proposed  remedy  are:  first^  to 
prevent  contracts  for  construction  being  made  beyond 
the  capacity  of  the  country  to  execute;  second,  to  stim- 
ulate an  increase  in  the  permanent  capacity  to  produce 
in  time  to  meet  and  keep  pace  with  any  permanent  in- 
crease in  the  prospective  rate  of  consumption;  third,  to 
keep  the  producers  advised  of  the  future  demand  in  order 
that  they  may  not  be  liable  to  make  the  mistake  of  closing 
down  their  works  and  discharging  workmen  during 
temporary  dull  periods  when  there  is  a  sure  demand  in 
the  near  future  which  will  consume  all  they  can  accumu- 
late hi  the  dull  period. 

ILLUSTRATION 

By  referring  to  Appendix  Z,  it  will  be  seen  that  there 
was  a  falling  off  in  iron  production,  from  a  19,500,000 
tons-per-annum  rate  to  a  12,900,000  tons-per-annum 
rate,  in  the  three  months  from  April  to  June  in  1904. 
This  was  at  a  time  when  plans  and  specifications  for  con- 
struction were  being  matured,  and  for  which  contracts 
were  soon  closed,  which  would  not  only  have  absorbed 
all  the  iron  and  steel  the  country  could  have  produced  at 


THE    REMEDY 

the  19,500,000  tons-per-annum  rate  during  the  next  three 
and  a  half  years,  but  would  have  absorbed  a  reserve  stock 
of  13,000,000  tons  in  addition,  had  such  a  stock  been  in 
existence.  This  falling  off  in  iron  production  occurred 
at  a  time  when  it  was  selling  in  the  United  States  at  an 
average  of  $12.50  per  ton,  and  on  the  eve  of  an  advance 
in  price  which  did  not  stop  until  it  reached  $24.50  per 
ton. 

The  iron-producers  curtailed  production  because  they 
did  not  know  this  large  future  demand  was  coming,  and 
because  they  believed  that  an  accumulation  of  iron  would 
result  in  a  decline  in  its  price.  But  it  needs  no  argument 
to  show  that,  if  it  had  been  known  that  there  was  an  assured 
demand  in  the  near  future  which  would  be  large  enough 
to  absorb  all  the  reserve  stock  that  could  be  accumulated, 
there  would  have  been  no  fear  that  the  temporary  accumu- 
lation would  cause  a  decline  in  prices,  and  the  producers, 
instead  of  curtailing  production,  would  have  pushed  pro- 
duction to  the  full  capacity  of  their  plants,  which  would 
have  been  a  profit  to  them  and  a  great  relief  to  the 
country. 

EFFECT  OF  THE  PEOPOSED  REMEDY 

It  needs  no  argument  to  convince  that,  if  the  manufac- 
turers of  construction  materials  knew  in  advance  that 
they  had  collectively  contracted  for  all  the  materials  they 
could  collectively  produce  in  any  given  time,  it  would 
result  in  their  ceasing  to  make  further  contracts  for  that 
time  until  the  capacity  to  produce  was  increased.  The 
instinctive  aversion  to  loss  is  the  natural  motive  relied 
upon  to  insure  this  result. 

It  needs  no  argument  to  convince  that,  if  it  were  known 
that  all  the  construction  materials  the  country  could 
produce  for  any  given  time  were  contracted  for  in  ad- 
vance, and  more  construction  was  being  offered,  this 
knowledge  would  stimulate  the  producers  to  increase  their 
capacity.  The  instinctive  desire  for  gain  is  the  natural 
motive  relied  upon  to  insure  this  result. 


228    INDUSTRIAL    DEPRESSIONS 

On  page  112,  attention  was  called  to  the  fact  that  con- 
tracts for  construction  are  signed  anywhere  from  several 
months  to  one  or  more  years  in  advance  of  the  time  when 
the  materials  for  their  erection  are  required  to  be  deliv- 
ered. Under  the  proposed  system  the  knowledge  of  the 
future  demand  would  be  obtained  by  the  government  and 
given  out  for  publication  immediately  after,  or  perhaps 
before,  the  contracts  were  signed,  and  thus  the  producers 
would  have  from  several  months  to  one  or  more  years  in 
which  to  enlarge  their  plants  to  meet  and  keep  pace  with 
the  assured  demand.  The  larger  the  construction  cov- 
ered by  the  individual  contracts,  the  longer  the  notice 
of  future  demand  would  probably  be.  It  is  quite  obvious, 
therefore,  that  under  the  proposed  system  it  would  be 
quite  practicable  to  make  known  any  prospective  increase 
in  construction  in  ample  time  to  build  new  plants,  or 
enlarge  existing  ones,  to  meet  any  demand  that  might 
come. 

On  the  other  hand,  should  the  statistics  at  any  time 
show  that  the  contracts  for  construction  were  falling  off, 
they  would  also  reveal  at  what  time  in  the  future  the 
actual  construction  would  fall  off,  and  this  advance  in- 
formation would  enable  the  producers  to  avoid  an  un- 
necessary enlargement  of  their  plants  or  an  unnecessary 
accumulation  of  materials. 

As  noted  in  other  parts  of  this  volume,  it  is  the  demand 
which  comes  for  delivery  of  construction  materials  in 
excess  of  the  country's  capacity  to  supply  it  on  contract 
time  that  causes  the  abnormal  advance  in  prices.  The 
effect  is  somewhat  similar  to  a  large  volume  of  short 
sales  on  an  exchange.  Under  the  proposed  system,  the 
public  would  be  kept  constantly  advised  of  the  future 
monthly  capacity  to  produce,  of  the  total  amount  of  con- 
struction materials  under  contract,  and  the  full  amount 
liable  to  be  called  for,  as  long  a  time  ahead  as  contracts 
existed  ahead.  Consequently  there  would  be  no  liability 
of  short  sales  of  construction  materials  for  any  period. 

Under  these  conditions,  there  would  probably  never 


THE    REMEDY  229 

again  be  an  extreme  instance  of  abnormal  advance  in  the 
price  of  construction  materials,  nor  any  further  violent 
checks  to  a  maximum  rate  of  construction,  unless  they 
came  from  war,  financial  panic,  or  some  other  external 
cause.  In  other  words,  the  extremes  of  supply  and 
demand  would  be  neutralized.  The  nation's  supply  of 
construction  materials  would  increase  to  meet  a  known 
future  demand  almost  automatically,  and  as  surely  as  if 
the  whole  matter  was  under  the  direction  of  one  supreme 
head  in  which  there  existed  a  perfect  knowledge  of  the 
future  demand  and  the  power  to  increase  the  supply  in 
time  to  meet  it.  Up  to  the  present  time,  the  supplies  for 
the  industries  of  the  country  have  depended  upon  as 
many  heads  as  there  were  separate  business  organizations, 
all  of  them  almost  totally  lacking  in  knowledge  of  what 
the  future  demand,  or  what  the  future  supply,  would  be. 
The  glaring  absurdity  of  the  industrial  nations  expect- 
ing to  conduct  their  most  important  industrial  affairs  to 
the  best  interest  of  their  citizens  under  such  a  total  want 
of  system  is  accentuated  by  their  experience  hi  the  past, 
and  by  contrasting  it  with  the  careful  system  pursued  by 
individuals  in  conducting  enterprises  of  even  moderate 
magnitude.  There  is  probably  not  a  successful  depart- 
ment store  in  existence  that  has  not  an  elaborate  and 
carefully  conducted  system  for  keeping  advised  of  the 
prospective  demand  for  goods,  and  the  gathering  of  a 
supply  to  meet  this  demand  when  it  comes;  yet  here  is 
the  constructive  business  of  five  great  nations  allowed  to 
drift  at  random,  without  one  solitary  effort  being  made  to 
ascertain  what  will  be  the  aggregate  demand  or  the  aggre- 
gate supply  for  the  great  staples  on  which  the  regularity 
and  prosperity  of  their  whole  industrial  systems  depend. 
The  result  has  been  nine  great  calamities.  First  came  a  long 
period,  in  which  great  numbers  of  idle  breadwinners  were 
consuming  wealth  and  producing  nothing.  They  were 
anxious  to  work  even  for  minimum  wages,  and  in  many 
cases  for  barely  sufficient  to  provide  their  families  with 
the  necessities  of  life.  Notwithstanding  this,  the  manu- 


INDUSTRIAL    DEPRESSIONS 

facturers  of  these  countries  continued  to  discharge  more 
workers,  or  to  shorten  the  hours  of  those  they  retained, 
until  the  product  of  their  factories  was  reduced  to  the 
small  amount  they  could  sell  from  month  to  month. 
These  long  periods  were  followed  by  short  periods,  in 
which  the  business  of  these  countries  suffered  in  con- 
sequence of  not  being  able  to  obtain  the  materials  the 
idle  breadwinners  might  have  produced  in  the  first-de- 
scribed periods.  As  well  might  one  of  these  nations 
attempt  to  assemble  a  great  army  and  rely  upon  the  head 
of  each  company  or  regiment  to  gather  its  own  supplies. 
What  a  spectacle  —  the  important  manufacturing  and 
mechanical  industries  of  five  nations  drifting  at  will  for 
generations,  without  the  first  effort  being  made  to  in- 
augurate a  system  to  regulate  them!  What  a  rich  field 
of  usefulness  does  this  condition  open  to  these  govern- 
ments, and  particularly  to  the  Bureau  of  Commerce  and 
Labor  of  our  own  government! 

There  is  nothing  forced  or  unnatural  about  this  pro- 
posed remedy.  It  amounts  simply  to  keeping  the  coun- 
try advised  of  how  much  construction  can  be  executed 
with  the  existing  capacity  each  month  in  the  future,  and 
how  much  is  under  contract  and  liable  to  be  demanded 
during  these  months.  It  leaves  the  citizen  as  free  as 
ever  to  do  what  he  chooses,  but  self-interest  will  prevent 
his  taking  contracts  which  cannot  be  executed,  and  self- 
interest  will  prompt  an  increase  in  capacity  when  the 
volume  of  assured  construction  justifies  it. 

If  some  of  the  contractors  or  producers  should  take 
the  risk,  and  continue  to  make  contracts  for  any  given 
period  after  the  limit  of  capacity  for  that  period  was 
reached,  the  statistics  of  the  following  month  would  re- 
veal it,  and,  if  this  overcontracting  were  done  to  any  con- 
siderable extent,  it  would  be  followed  by  an  advance  in 
prices,  which  would  stimulate  an  increase  in  the  capacity 
to  produce  until  the  supply  and  demand  again  became 
adjusted. 

If,  on  the  other  hand,  the  contracts  for  future-delivery 


THE    REMEDY  231 

materials  for  any  given  period  should  fall  below  the 
capacity  to  produce  in  that  period,  it  would  be  followed 
by  a  decline  in  prices,  and  this  in  turn  would  have  a  ten- 
dency to  stimulate  the  demand  until  the  supply  and 
demand  again  became  adjusted. 

These  fluctuations  hi  supply  and  demand  for  future- 
delivery  materials  would  be  affected  under  very  small 
fluctuations  in  prices,  because,  as  noted  on  pages  118  to 
119,  a  large  volume  of  the  contracts  for  construction  is 
checked  before  the  advance  in  prices  has  reached  as  much 
as  10  per  cent.,  and  under  the  proposed  system  the 
advances  in  prices  would  be  known  as  contracts  were 
being  signed,  instead  of  several  months  or  one  or  two 
years  after  they  were  signed. 

This  advance  information  regarding  the  future  volume 
of  supply  and  future  volume  of  demand  would  result  in  a 
natural  adjustment  of  these  two  important  elements  to 
each  other.  The  instinctive  desire  for  gain  would  be  as 
active  under  the  new  system  as  it  is  at  present,  but  its 
operation  and  effects  would  be  entirely  different.  Even 
if  prices  were  abnormally  low  and  the  far-seeing  ones  were 
disposed  to  contract  for  an  excessive  amount  of  construc- 
tion, the  builders  and  manufacturers  would  know  when 
the  capacity  of  the  country  was  reached,  and  would  refuse 
to  make  further  contracts  for  the  period  already  fully 
covered;  whereas,  in  the  past,  in  the  absence  of  any  such 
knowledge,  they  have  been  eager  to  accept  such  an  ex- 
cessive amount  of  contracts  as  eventually  to  cause  them 
embarrassment  and  loss.  Thus  the  instinctive  desire  for 
gain  would  become  the  check  to  prevent  overcontracting, 
instead  of  the  incentive  which  in  the  past  has  caused  the 
overcontracting. 

The  overcontracting  which  has  in  the  past  been  the 
cause  of  the  abnormal  advances  in  price  of  construction 
materials  would  thus  be  done  away  with,  and,  the  cause 
being  removed,  the  abnormally  high  prices  would  not  again 
be  reached.  High  prices  being  done  away  with,  such 
violent  checks  to  investment  construction  as  have  here- 


INDUSTRIAL    DEPRESSIONS 

tofore  resulted  from  this  cause  would  be  done  away  with. 
We  should  have  no  more  such  excessive  fluctuations  in 
the  prices  of  construction  materials,  and  greater  uniform- 
ity in  demand  and  supply  would  naturally  result. 

The  conditions  which  create  booms  and  depressions 
are  the  two  extremes  of  three  different  things,  namely: 
demand,  supply,  and  prices.  If  the  two  extremes  of  each 
of  these  three  things  were  brought  together,  it  would  be 
like  mixing  an  acid  and  an  alkali,  that  is,  the  active 
qualities  of  each  would  be  neutralized,  and  the  six  extreme 
conditions  would  thus  give  place  to  three  normal  condi- 
tions. The  abnormal  fluctuations  in  prices  would  be 
done  away  with,  because  of  the  advance  knowledge  of  the 
future;  for  the  same  reason  the  supply  would  be  increased 
to  meet  a  reasonable  demand,  and  the  demand  would  thus 
be  confined  to  the  possible  supply. 

It  has  been  the  absence  of  knowledge  of  the  future 
conditions  of  supply  and  demand  which  has  been  respon- 
sible for  the  great  irregularities  in  these  two  conditions. 
The  furnishing  of  this  knowledge  of  the  future  should 
therefore  bring  about  such  a  perfect  adjustment  of  these 
two  conditions  that  booms  and  depressions,  as  far  as  they 
are  the  results  of  this  particular  derangement  from  within 
the  industries  themselves,  would  be  substantially  done 
away  with. 

To  restore  prosperity,  therefore,  the  low  prices  which 
stimulate  investment  construction  must  be  reached, 
whatever  those  prices  may  be,  and,  to  continue  prosperity, 
the  abnormal  demand  which  causes  high  prices  must  be 
prevented.  The  proposed  remedy  will  not  only  show  the 
public  to  how  low  a  level  prices  must  drop  to  restore 
prosperity,  but  will  show  when  that  level  has  been  reached, 
and  thus  do  away  with  the  danger  of  prices  going  so  low 
as  again  to  stimulate  an  excessive  demand.  The  pro- 
ducers and  consumers  of  the  country  will  simply  be  work- 
ing in  the  light,  instead  of  working  in  the  dark,  and  the 
extremes  of  demand,  supply,  and  prices  will  probably 
never  recur  to  any  abnormal  extent. 


THE    REMEDY  233 

We  do  not  claim  that  the  remedy  we  have  suggested 
will  be  a  cure-all  or  panacea;  perfection  cannot  be  ex- 
pected in  any  of  the  business  systems,  but  that  is  no 
reason  we  should  not  strive  to  gain  a  near  approach  to  it. 
Old  microbes  and  new  must  be  expected  to  keep  up  their 
warfare  in  each  of  the  systems.  Fluctuations  in  the 
prices  of  construction  materials  will  not  be  annihilated, 
but  when  the  proposed  remedy  is  well  established  they 
will  undoubtedly  be  reduced  to  a  minimum.  The  splen- 
did progress  some  cities  and  nations  have  made  in  ward- 
ing off  or  mitigating  the  ravages  of  pestilences  has  made 
it  possible  to  build  enduring  cities.  As  a  vivid  object- 
lesson  of  how  we  may  benefit  by  wise  and  effective  efforts, 
we  have  the  spectacle  of  the  nations  which  still  suffer 
from  famine  and  pestilence,  and  the  nations  which  do 
not.  Wise  and  intelligent  efforts  bid  fair  to  further  the 
progress  already  attained  in  mitigating  the  evils  of  panics, 
wars,  bad  legislation,  political  upheavals,  and  other  mala- 
dies. A  different  remedy  has  been  required  for  each  one 
of  them.  Improvement  has  come  only  as  the  people 
have  discovered  the  logical  remedies  for  each,  and  applied 
them.  Weeds  will  develop  without  man's  attention,  but 
good  crops  never.  Industrial  depressions  have  grown  to 
be  a  very  great  calamity;  some  of  their  causes  cannot  be 
overcome;  but  if  the  analysis  described  in  this  book  has 
not  led  us  astray,  the  most  serious  and  disastrous  of 
them  can  be  very  greatly  alleviated,  if  not  wholly  over- 
come. 


APPENDICES  TO 
INDUSTRIAL  DEPRESSIONS 


INDEX  TO  APPENDICES 

A.    (FIRST  PART.)    MONTHLY  PRICES  OP  Pia  IRON  IN    PHILADELPHIA 
FROM  1799  TO  1849. 

A.    (SECOND  PART.)    MONTHLY  PRICES  OP  Pia  IRON  IN  PHILADELPHIA 
PROM  1842  TO  1910. 

A.  (THIRD  PART.)    LOWEST  AND  HIGHEST  PRICES  OF  SCOTCH  PIG  IRON 

IN  NEW  YORK  FROM  1825  TO  1888. 

B.  ALLEGED  CAUSES  OF  DEPRESSIONS  AS  ELICITED  BY  COMMITTEES  OP 

CONGRESS. 

C.  ALLEGED  CAUSES  OP  DEPRESSIONS  AS  GATHERED  BY  AGENTS  OF  THE 

UNITED  STATES  BUREAU  OF  LABOR. 

D.  MONTHLY  STATISTICS  OP  PIG  IRON  IN  THE  UNITED  STATES  FROM 

1896  TO  1910. 

E.  ANALYSIS    OF  AVERAGE  PRICES  OF  PIG  IRON  IN  UNITED    STATES 

FROM  1896  TO  1910. 

G.    TABLE  OF   SEVEN  INDUSTRIAL  DEPRESSIONS  FROM  1825  TO  1886, 
AND  EIGHT  FROM  1887  TO  1910. 

H.    RELATIVE  RANK  OP  NATIONS  IN  ALL  IMPORTANT  AFFAIRS. 

(Compiled  from  MulhalFs  Dictionary  of  Statistics.) 

L.    DIAGRAM  OF  CONTRACTS  FOR  CONSTRUCTION    AND   EXECUTION  OP 
CONTRACTS. 

M.  WORLD'S  PRODUCTION  OF  PIG  IRON  FROM  1500  TO  1910. 
O.    RAILROAD  MILEAGE  OF  THE  UNITED  STATES. 

P.    BUILDING  PERMITS  OF  FIFTY-SEVEN  CITIES  FOR  YEARS  1906  AND 
1907. 

Q.    UNFILLED  ORDERS  OF  THE  UNITED  STATES  STEEL  CORPORATION. 

Z.     DIAGRAM  OF  PRODUCTION,  CONSUMPTION  AND  PRICES  OF  IRON  FROM 
1800  TO  1910,  ETC. 


236 


APPENDIX   A    (FIRST   PART) 

AVERAGE  PRICES  PER  GROSS  TON  OF  CHARCOAL  PIG  IRON  AT 
PHILADELPHIA   FROM    1799   TO   1849 

FROM  REPORTS  OF  AMERICAN  IRON  AND  STEEL  ASSOCIATION 

The  following  table  has  been  compiled  from  the  Statistical  Chart  of  Mr.  William  G. 
Nielson,  and  embraces  the  prices  of  charcoal  pig  iron  from  the  beginning  of  the  century 
to  the  time  when  anthracite  pig  iron  became  the  standard  for  comparison.  Until  May, 
1827,  the  following  prices  are  for  best  pig  iron;  from  May,  1827,  to  June,  1833,  they  are 
for  an  average  of  all  grades;  from  June,  1833,  to  January,  1840,  they  are  for  gray  iron; 
and  from  January,  1840,  to  the  close  of  the  table  they  are  for  No.  1  Foundry.  After  1849 
the  standard  of  quotations  was  No.  1  anthracite  foundry  pig  iron,  hereafter  given. 


Years  Jan.  Feb.  March  April  May  June  July  Aug.  Sept.  Oct.  Nov.  Dec 

1799  .    36 

36}   36 

36    36i   36J   36i   36 

36   36}  36}  36 

1800  ...   36 

36}   36 

36    36}   36}   36}   36 

36   36}  36   34 

1801  ...   33 

33*   33 

33    33*   33}   31    32 

32   32*  32*  32 

1802  ...   32 

32*   32 

32    32    31*   30*   29 

29   29   29   28 

1803  ...   28 

28    28 

28    29    29    29}   29 

30   30   30   30 

1804  ...   30 

30    30 

30    30    30    30    30 

30   294  29   29 

1805  ...   29 

29    29 

29    29    29*   31    32    32   32*  33   33* 

1806  ...   35 

35*   35* 

35*   35*   35*   35*   35*   35*   36   36*  37 

1807  ...   37 

37    37 

37*   38    40    40    40 

40   40   40   40 

1808  ...   40 

40    40 

40    40    40    40    40 

40    40   40   40 

1809  ...   40 

40    40 

40    40    40    40    40    40   40   40   40 

1810  ...   38 

38    38 

38    38    38    38    38 

38   38   38   39 

1811  ...   38 

38*   41 

43    45    45    45    45 

45   46   47 

47 

1812  ...   47 
1813  ...   47 

47*   47 
47*   47 

47    47*   47*   47*   47 
47    47*   47*   47*   47 

47   47*  47 
47   47*  47 

47 
46 

1814  ...   45 

45    45 

45    45    45    45    45 

45   46   48 

52 

1815  ...   55 

55    55 

55    55    55    54    52}   52*   52*  52 

52 

1816  .    52 

50*   50 

50    50    50    50    50 

50   50   50   50 

1817  ...   50 

50    50 

50    50    49    47    45 

44    43   42*  42* 

1818  .    42 

42*    42 

42*   42*   42*   42*   42* 

12    42*  42   41 

1819  ...   39 

38    38 

37}   35*   35    35    35 

35   35   35   35 

1820  ...   35 

35    35 

35    35    35    35    35 

35   35   35   35 

1821  ...   35 

35    35 

35    35    35    35    35 

35   35   35   35 

1822  ...   35 

35    35 

35    35    35    35    35 

35   35   35   35 

1823  .    35 

35    35 

35    35    35    35    35    35   35   35 

36 

1824  ...   37J   37*   37} 
1825  ...   43    42}    43$ 
1826  ...   45    45    45 
1827  ...   47*   47*   47* 

39    40    40    40    40    40*   41  f  42 
44    47*   50    50    50    50   49   47 
45    46}   47*   47*   47*   47*   47*  47 
46    36*   35}   35    35    35   35   35 

42 
45 

1  S* 

1828  ...   35 

35    35 

35    35    35    35    35 

35   35   35   35 

1829  ...   35 

35    35 

35    35    35    35    35 

35   35   35   35 

1830  ...   35 

35    35 

35    35    35    35    35    35   35   35   35 

1831  ...   35 

35    35 

35    35    35    35    35 

35   35   35   35 

1832  ...   35 

35    35 

35    35    35    35    35 

35   35   35   35 

1833  ...   35 

35    35 

35    35    40    40    40    40   40*  41 

40 

1834  ...   35 

31    30 

30    30    30    30    30 

30   30   29 

28 

1835  ...   29}   29*    29} 

30    30}   30    30    30    30   30*  30 

31 

1836  ...   32 

32*   35 

39    41    41}   41}   42 

(5   47   49   50 

1837  ...   51 

\   52*   52 

51    49    47    42    39 

35   34}  35 

36 

1838  ...   35 

35}   35 

34    31    31}   32    32 

31   31*  31 

3U 

1839  ...   31 

I   32    33 

34    34    34    33*   33 

33   32}  32   32" 

1840  ...   32 

32    31* 

30}   30*   30*   30    29 

29   29   29   29 

1841  ...   29 

29    29 

29    29    28*   28    28 

28   28   28 

28 

1842  .     29 

29*   29 

28*   28*   28*   28    27* 

27   27*  27 

27 

1843  ...   28 

29    29 

28    28    26    25    25 

25   25}  25 

26 

1844  ...   27 

27    26* 

26}   28    29*   29*   29* 

29   30   29 

30 

1845  ...   30 

29}   32 

35    36*   35    33    32 

30   30*  31   32 

1846  ...   33 

33    32* 

32*   32*   31*   31}   30 

29    30   29 

30 

1847  ...   30 

30*   30 

30    30    29}   29*   30*   33'   33}  35 

34 

1848  ....  34 

32    30 

29    29*   29    28    27 

26   26   25 

25 

1849  ....  25 

25*   25 

25    25    24*   23}   23*   23}  24   24 

24 

237 


238  APPENDICES 

APPENDIX   A    (SECOND    PART) 


AVERAGE  PRICES 

PER  GROSS  TON  OF  NO.  ] 

I  ANTHRACITE 

FOUNDRY  PIG  IRON  AT 

PHILADELPHIA 

SINCE  1842 

FROM  REPORTS 

OF  AMERICAN  IRON  AND  STEEL 

ASSOCIATION 

Years   Jan.  Feb.  March  April  May  June  July  Aug.  Sept.  Oct.  Nov.  De< 

1842  .  .   — 

— 

— 

—   27 

27    26*   24*   25*   25 

25   25 

1844  .  .   24 

24 

24 

24    24 

26}   26*   26 

27| 

28 

27 

26} 

1845  .  .   26 

I   263 

\   27; 

33*   34j 

\   33    31    28 

27 

26] 

28 

28 

1846  .  .   28 

28 

28; 

28    28; 

28    29    26 

27| 

t   27 

28 

28* 

1847  .  .   28 

k   283 

k   28; 

29    29 

28f   28    28 

30 

r  33{ 

35 

33} 

1848  .  .   31 

28 

27; 

26}   26. 

26*   25}   25 

25 

25 

25   24  1 

1849  .  .   25 

243 

24; 

24    23 

23    22}   22 

21 

E   21} 

20   21 

1850  .  .   21 

21 

20  i 

20  J   20 

20*   20    20 

21 

21 

21   21} 

1851  .  .   21 

22 

22 

22    21 

21*   21    21 

21 

21 

21   21 

1852  .  .   21 

21 

203 

20}   20; 

20*   20}   21' 

I   23 

-   26} 

27 

28} 

1853  .  .   32 

36 

35j 

35i   35 

36    36    36 

-36 

37 

37 

36} 

1854  .  .   37 

36 

37 

38    38 

38    38    38 

371 

36 

35 

32J 

1855  .  .   31 

29 

27} 

26}   26*   26 

26*   26*   28 

28 

28 

27| 

1856  .  .   27 

27 

27 

28    28 

27 

27    27 

27 

26 

26 

26 

1857  .  .   26 

26 

26 

27 

27, 

27 

27 

26 

;   26|   25i 

23 

23} 

1858  .  .   23 

22 

22 

22 

22 

22 

21 

21 

22 

21  j 

21 

22  i 

1859  .  .   22 

23 

24 

23 

23 

23 

23 

23 

22j 

-   23 

23 

23, 

1860  .  .   23 

23 

23 

22 

22 

22 

22 

22 

22 

22 

22 

22: 

1861  .  .   22*   21 

21 

21 

21 

20 

19 

18 

18 

18 

18 

1862  .  .   20 

20 

20 

21 

21 

22 

24 

24 

24 

25 

30 

31; 

1863  .  .   32 

33 

35 

36^   34' 

33 

32 

31 

33 

35 

41 

43. 

1864  .  .   43 

48 

50 

54*   57 

57 

69 

73 

72  1 

63 

61 

59  1 

1865  .  .   58 

53 

50 

45*   39 

35    35 

40 

44 

49 

51 

50; 

1866  .  .   50 

49 

46 

41}   41 

43J   46 

47 

48 

48 

49 

49. 

1867  .  .   48 

46 

44 

.   41    42 

43    43 

44 

44. 

44. 

43 

42, 

1868  .  .   38 

36 

37 

38*   37 

37    38 

39 

41 

42 

43; 

1869  .  .   42 

40 

41 

40    39 

t   40 

41 

41 

!40 

40 

39 

39. 

1870  .  .   36 

t   343 

34 

33}   33 

t   32 

32 

33 

33 

32 

31 

1871  .  .   30*   30 

34 

35|   35 

35'   35 

36 

36 

37 

37': 

1872  .  .   37 

40 

47 

40*   49 

53}   51 

52 

\   53 

53 

51 

474 

1873  .  .   45*   48 

48}   47}   46 

45    43 

43*   42 

38 

33   32* 

1874  .  .   32 

32 

32 

32    31  1 

f   31*   31 

31 

293 

t   29 

26 

24 

1875  .  .   25 

|   26 

k   27 

27    26 

26    26    26 

25 

24 

23 

23* 

1876  .  .   23 

23 

23 

22}   22 

22    22    22 

21 

\   21}  21 

21} 

1877  .  .   20 

20 

20 

19*   19 

18 

18 

18 

18j 

18* 

18   18 

1878  .  .   18 
1879  .  .   17 
1880  .  .   40 

18 
t   17 
41 

t    18*   18*   18    17 
t    17f   18    18*   18 
374   31    25    23 

17 
19 
233 

17 
20 
25 

\   17 
i   24 
23 

\   17 
30 
23 

16*  17 
28   30* 
24   25 

1881  .  .   25 

25*    26" 

25    25 

24    243 

24 

\   25}   25*  25 

26 

1882  .  .   26 

26 

25}    25*   25*   25*   25 

25 

fc   26 

20}  26   25} 

1883  .  .   25 

24 

t    24 

23*   22 

21    2V 

22 

22 

21 

21   21 

1884  .  .   20 
1885  .  .   18 
1886  .  .   18 
1887  .  .   21 

\   20*   20*   20 
18    18    18 
18*    18}   183 
21*   21    20 

20 
171 
18. 
20 

20 
\   17 
f   18 
21 

20 
17 
18 
21 

19*   19*   19*  19 
17}   18   18}  18 
18}   18}   19   19 
21    21    20*  20 

18* 
18} 
20 
20* 

1888  .  .   21 

20' 

1   20} 

19 

18 

18    18    18 

18 

18 

18   18 

1889  .  .   18 

18 

18 

17 

17 

17}   17}   17*   17*   17*  18*  19} 

1890  .  .   19A   19*    19: 
1891  .  .   17*   17*    17 
1892  .  .   17*   17    16. 
1893  .  .   14}   14}   14; 

18 
r   17 
16 
14 

18    18 
17*   17 
16    15 
\   141   15 

18    18    18    18   18 
17*   17*   17*   17}  17 
15    15    15    15   15 
15    14*   14*   14}  13 

18 

17* 

15; 
13; 

1894  .  .   13}   13 

13 

r   12*   12*   123 

F   12} 

12} 

12 

12. 

1895  .  .   12 

12 

12 

128   12 

12 

13    13' 

14 

143 

14 

13 

1896  .  .   13 

\   133 

13j 

13 

12 

r   12 

12 

12- 

12 

123 

12}  12} 

1897  .    12 

12' 

12 

11 

11 

11 

11 

11 

12 

12   12 

1898  .  .   12 

11 

:   iii 

11 

11 

11 

11 

11 

11 

11}  11}  12 

1899  .  .   12 

t   13 

16 

16 

16 

18 

20 

21 

23 

23; 

25   25 

1900  .  .   25 

243 

23  1   23 

22 

20    17    17] 

17 

16 

16 

16* 

1901  .  .   16 

16 

16 

16 

16 

16    15 

15 

15} 

15$ 

15 

16} 

1902  .  .   17*   18 

1    19} 

20 

21 

24 

24 

243 

243 

24 

24} 

1903  .  .   24 

23' 

233 

22 

21 

20 

19    18 

173 

16: 

16   15{ 

1904  .  .   15 

15 

15i 

15 

15}   15| 

14 

15 

15 

16 

16 

17} 

1905  .     17 

18 

18 

18 

17 

17 

17J 

17^ 

17  '• 

18 

19 

1906  .  .   19 

19 

19 

19 

193 

19 

19}   22j 

24 

25   26* 

1907  .  .   27 

27\ 

1   26}   26 

26  i 

25^ 

23 

22*   21] 

20  J 

19}  18} 

1908  .  .   18 

18' 

181 

18 

17 

17 

17    17 

17j 

17' 

17*  17} 

1909  .  .   17 
1910  .  .   19 

17 
19 

16^ 

;    IS: 

16 

r   18 

16. 
17 

16 
17 

17    17*   18*   19] 
16}   16*   16*   16] 

19*  19* 
16}  16 

APPENDICES 


239 


APPENDIX   A    (THIRD  PART) 

LOWEST  AND  HIGHEST  PRICES  OF 
SCOTCH  PIG  IRON  IN  THE  NEW  YORK  MARKET 

FROM  THE  AMERICAN  ALMANAC,  EDITED  BY  A.  R.  SPOFFORD,  LIBRARIAN  OF 
CONGRESS,  WASHINGTON,  D.C. 


YEAB 

LOWEST 

HIGHEST 

YEA.B 

LOWEST 

HIGHEST 

TON 

TON 

TON 

TON 

1825 

$35.00 

$75.00 

1858 

$22.00 

$27.00 

1826 

50.00 

70.00 

1859 

22.00 

31.50 

1827 

50.00 

55.00 

1860 

20.50 

27.00 

1828 

50.00 

55.00 

1861 

20.00 

24.50 

1829 

40.00 

55.00 

1862 

21.00 

33.00 

1830 

40.00 

50.00 

1863 

32.50 

45.00 

1831 

40.00 

47.50 

1864 

43.00 

80.00 

1832 

40.00 

47.50 

1865 

40.00 

55.00 

1833 

37.50 

47.50 

1866 

42.00 

55.00 

1834 

37.50 

48.00 

1867 

38.00 

49.00 

1835 

38.00 

42.50 

1868 

35.00 

45.75 

1836 

38.00 

62.50 

1869 

34.50 

45.00 

1837 

40.00 

70.00 

1870 

31.00 

37.00 

1838 

37.50 

55.00 

1871 

30.00 

39.00 

1839 

37.50 

45.00 

1872 

33.50   . 

61.00 

1840 

32.50 

40.00 

1873 

37.00 

52.00 

1841 

32.00 

37.50 

1874 

33.00 

45.00 

1842 

23.50 

35.00 

1875 

29.00 

41.00 

1843 

22.50 

32.00 

1876 

27.50 

34.00 

1844 

30.00 

35.00 

1877 

25.00 

28.00 

1845 

30.00 

52.50 

1878 

21.50 

26.50 

1846 

35.00 

42.50 

1879 

19.00 

30.50 

1847 

30.00 

42.50 

1880 

21.00 

35.00 

1848 

25.00 

37.50 

1881 

22.00 

26.00 

1849 

22.50 

27.50 

1882 

23.00 

26.50 

1850 

21.00 

24.00 

1883 

20.00 

25.50 

1851 

19.00 

25.00 

1884 

18.00 

23.00 

1852 

19.00 

31.00 

1885 

17.00 

21.00 

1853 

28.50 

38.00 

1886 

18.00 

21.50 

1854 

32.00 

42.50 

1887 

19.25 

23.50 

1855 

26.50 

37.00 

1888 

18.50 

22.00 

1856 

29.00 

37.00 

1889 

— 

— 

1857 

28.00 

37.50 

— 

— 

"~ 

KEY  TO  APPENDICES  B  AND  C 

REASONS  FOR  THE  ELIMINATIONS  MADE,  AND  LETTERS 
USED  TO  IDENTIFY  EACH 

A.  Occurred  in  one  nation  only,  or  not  common  to  all  five  nations.     (See 

page  73.) 

B.  Exist  continuously,  or  in  prosperous  times,  as  well  as  in  depressed  times. 

(See  page  74.) 

C.  Too  unimportant  to  be  responsible  for  mysterious  industrial  depres- 

sions in  five  nations  contemporaneously.     (See  page  74.) 

D.  Things  which  make  or  increase  business,  hence  cannot  be  cause  of 

depressions,  which  are  a  decrease  in  business.     (See  page  73.) 

E.  Things  which  affect  individuals  but  do  not  affect  nations,  hence  not 

responsible  for  a  great  national  depression.     (See  page  74.) 

F.  Connected  with  financial   affairs,   financial  derangements   do  cause 

industrial  depressions,  but  when  they  do,  it  is  known.     They  are 
not  the  cause  of  the  mysterious  depressions.   (See  pages  71  and  72.) 

G.  Subjects  of  special  treatment.     (See  page  73.) 

H.   Conditions  of  depressions.    They  are  the  sum  and  substance  of  de- 
pressions, hence  not  the  cause.     (See  page  76.) 

The  figures  1  to  21  used  in  the  second  column  of  Appendices  B  and  C, 
are  referred  to  on  pages  76  and  77. 


240 


APPENDIX   B 

ALLEGED  CAUSES  OF  DEPRESSIONS  AS  ELICITED  BY  COM- 
MITTEES OF  CONGRESS 

FROM  FIRST  ANNUAL  REPORT  OF  THE  COMMISSIONER  OP  LABOR 

C.  A ADMINISTRATION,  change  in  the  policies  of 

C.  B AGITATORS,  undue  influence  of 

G.  F BUSINESS  ENTERPRISES,  stoppage  of,    by  panic 

C.  F.  D.  B.  A CAPITAL,  influx  of  foreign 

F.  D.  B aggressive  inroads  of 

G.  F.  E.  D excessive     conversion    of     circulating,    into 

fixed 

F.  E.  B centralization  of 

F.  E.  C.  B interests    of,    not   identical   with    those    of 

labor 

F.  E.  D.  B small  capitalists  swallowed  up  by  larger  ones 

F.E.B manipulations  of  the  money  power 

F.  E.  D.  B combinations  of 

F undue  accumulation  of 

E.  D.  C.  B CIGAR  FACTORIES,  tenement  house 

*(13)  CONFIDENCE,  want  of 

H (5)  CONSUMPTION,  under 

E.  C.  B.  A CORPORATIONS,  land  grants  to 

E.  B CORRUPTION,  in  municipal  governments 

F CREDITS,  expansion  of 

G CRISIS,  commercial 

F.  A CURRENCY,  contraction  of 

F.  D.  A inflation  of 

F.  A agitation  of 

F.  A fluctuations  of 

F.  A depreciation  of 

F.  A deficient  volume  of  the 

F withdrawal  of,  from  circulation  for  specu- 
lation 

F.  A inflation  of  the,  followed  by  contraction 

F.  A destruction  of  the 

F.  A faulty  legislation  regarding 

F.  A conversion  of  the  government,  into  interest- 
bearing  bonds 

F.  E.  A losses  of  creditors  during  the  depreciation  of, 

and  of  debtors  during  the  appreciation  of 

F.  E losses  of  workingmen  by  goods  rising  sooner 

than  their  wages  during  the  depreciation  of, 
and  wages  falling  before  goods  during  the 
appreciation  of 

*  Figures  used  in  this  column  are  referred  to  on  page  76.  • 
241 


APPENDICES 

F.  B suspension  of  specie  payments 

F overissue  of  irredeemable  paper  money 

F.  A distrust  of  paper  money 

F.  A disturbed  value  of  gold  and  silver 

F.  A resumption  of  specie  payment 

F.  A changing  the  measure  of  the  value  of  money 

F.  A fraud  of  the  finance  system 

F.  A borrowing  depreciated  money  by  government 

and  individuals 

F.  A demonetization  of  silver 

F.  A remonetization  of  silver 

F.  A issue  of  greenbacks 

F.  A refunding  act 

F.  A    passage  of  resumption  act  in  1875 

F.  C solution  of  the  labor  question  turns  entirely 

on  the  circulation  of 
F DEBTS,  contraction  of 

E.  A contraction  of  large  foreign,  prior  to  1874 

H (1)  DEMAND,  want  of 

F.  A DEPRESSION,  prolonged  by  want  of  fixed  policy 

for  return  to  specie  payment 
E.  C.  B DESTITUTION,  caused  by  sickness 

G.  E.  C.  B.  A EDUCATION,  lack  of 

E.  C.  B common  school,  not  practical 

G.  E.  C.  B too  exclusively  intellectual 

E.  C.  B indifference  to 

E.  C.  B defects  of  system  of 

B want  of  technical  training 

B want  of  industrial  schools 

B economic  ignorance 

D.  B ELECTRICITY,  great  utilization  of  the  power  of 

H (7)  EMPLOYMENT,  want  of 

E.  D.  B EXTRAVAGANCE,  induced  by  credit 

E.  D.  B of  dress 

D.  B in  government  expenses 

G.  E.  D.  B FASHIONS,  in  dress,  devotion  to 

C.  B FOOD,  adulteration  of 

C.  B.  A FRANCHISES,  government  not  receiving  enough  for 

E.  C.  B GIRLS,  want  of  training  of,  for  future  duties 

G.  D.  B.  A GOODS,  importation  of 

G.  D.  C.  B IMMIGRATION,  immigration  of  Chinese 

F.  E.  C.  B.  A INCOME  TAX,  repeal  of  the 

F.  B INDEBTEDNESS,  national  and  other 

E INDOLENCE,  instinctive  and  widespread 

E.  B INDULGENCES,  harmful 

E.  C.  B INTEMPERANCE 

F.  E.  C.  B INTEREST,  too  high  rates  of 

D.  B INVENTION,  the  great  development  of 

B KNOWLEDGE  AND  WEALTH,  lack  of  material 

C.  B LABOR,  inefficiency  of 

E.  C.  B thriftlessness  of 

C.  B lack  of  interest  of  the  laborer  in  his  work 

C.  B lack  of  combining  power  of 

D.  A too  small  wages  to 

C.  B unadjustment  of 

E.  D.  C.  B competition  of 


APPENDICES  243 

D.  C.  B too  many  hours  of 

C.  B handicapped  by  legislation 

H.  C.  B surplus  of,  in  cities 

E.  C.  B unjust  taxation  of 

G.  E.  C.  B coolie 

G.  E.  C.  B convict 

E.  C.  B female 

E.  C.  B child 

E.  C.  B cheap  imported 

E.  C.  B want  of  economy  of 

C.  B interests  of,  not  identical  with  those  of 

capital 

C.  B improvident  and  misdirected  efforts  of  labor- 
ing classes 

E.  C.  B social  differences  between  the  laboring  classes 

and  capitalists 

E.  C.  B neglect  of  laboring  men  by  the  aristocracy 

E.  C.  B.  A LAWS,  bankrupt 

E.  C.  B.  A conspiracy 

E.  C.  B.  A land 

E.  C.  B.  A navigation 

E.  C.  B.  A patent 

E.  C.  B.  A trustee 

E.  C.  B.  A relative  to  the  guardianship  of  children 

E.  C.  B.  A want  of  homestead  exemption 

E.  C.  B LEGISLATION,  class 

B faulty 

E.  C.  B privileged 

C.  B withholding  franchise  from  women 

B MACHINERY,  improper  use  of 

D.  B labor-saving 

B MISCALCULATION 

F.  B MISMANAGEMENT,  financial 

C.  B.  A MONOPOLY,  land 

E.  C.  B.  A telegraph 

E.  C.  B.  A news 

E.  B.  A railroad 

F.  E.  C.  B interest 

D.  C.  B invention 

F.  C.  A NATIONAL  DEBT,  paying  the,  before  the  develop- 

ment of  the  industries  of  the  country 

C.  B NECESSARIES  OF  LIFE,  speculation  in  the 

H (8)  NON-PRODUCERS,  too  many 

G.  F PANIC  OF  1873 

E.  C.  B PASSES,  free 

E.  D.  C.  B PRODUCE  EXCHANGE,  fluctuations  in 

E.  D.  B PRODUCTION,  planless 

D over 

E.  D.  C.  B PRODUCTS,  competition  of,  in  market 

E.C.B PROFITS,  unequal  division  of 

F.  E.  B RAILROADS,  speculation  in 

B.  A pools  of 

E.  C.  A war  rates  of 

E.  C.  B excessive  freight  rates  of 

E.  D excessive  building  of 

C.  B.  A land  grants  to 


244  APPENDICES 

F.  A fictitious  values  in 

C.  B.  A reformed  system  of 

G REACTION 

F.  C.  B REVENUE,  faulty  collection  of 

E.  C.  B SANITARY  CONDITIONS,  bad 

F SPECULATIVE  ERA,  collapse  from 

F.  E.  D.  C.  B SPECULATION 

D.  B STEAM,  great  utilization  of  the  power  of 

D.  C.  B STIMULATION,  artificial 

F.  E STOCKS,  watered 

F.  D.  B.  A SYSTEMS,  monetary 

E.  D.  C.  B competitive 

E.  C.  B.  A educational 

E.  C.  B contract 

D.  C.  B government  contract 

E.  D.C.  B truck 

F.  B credit 

F.  D.  B.  A national  banking 

B.  A political,  perversion  of 

B wage 

F.  B.  A financial,  erroneous 

E.  C.  B social,  erroneous 

G.  C.  B.  A TARIFF,  protective 

C.  B.  A restrictive 

G.  C.  B agitation  of 

E.  C.  B improperly  adjusted 

E.  C.  B unjust  discrimination  of 

G.  E.  C changes  of 

G.  E.  C.  B TAXATION,  indirect 

E.  C.  B needless 

E.  C.  B unequal 

E.  C.  B over,  of  land 

E.  C.  B over,  of  labor 

E.  C.  B under,  of  incomes 

E.  C.  B under,  of  capital 

E.  C.  B bonanza  farms  escaping 

E.  C.  B capitalists  escaping 

E.  C.  B TELEGRAPH,  high  rates  of 

E.  C.  B TOBACCO 

(15)     VALUES,  expanded 

G.  F WAR,  absorption  of  capital  by 

G.  F destruction  of  property  during 

E.  C.  B WORK,  piece 


APPENDIX    C 

ALLEGED    CAUSES    OF    DEPRESSIONS    AS    GATHERED    BY 
AGENTS  OF  THE  UNITED  STATES  BUREAU  OF  LABOR 

FROM  FIRST  ANNUAL  REPORT  OF  THE  COMMISSIONER  OF  LABOR 

F Acts  that  startle  money-lenders,  causing  them  to 

withdraw  funds  and  refuse  loans 

C.  B.  A ADMINISTRATION,  change  of 

G.  D.  C AGRICULTURAL  PRODUCTS,  low  prices  for 

F.  C.  B APPRENTICE  SYSTEM,  abolition  of  the 

F BANKS,  failure  of 

F.  A fear  of  adverse  legislation  relative  to 

F.  E.  D too  liberal  lending  by 

F.  B.  A BANKING  SYSTEM,  erroneous 

E.  B BUSINESS,  lack  of  comprehension  of  details  of 

E.  D.  B CAPITAL,  absorption  of,  by  corporations 

E.  D.  B aggressiveness  of 

E.  C.  B attitude  of,  versus  labor 

F.  E.  B concentration  of,  in  banking  and  discount- 

ing centers,  instead  of  geographical  ones 

F.  E.  D.  B concentration  of  small  interests  in  larger  ones 

F.  E.  B dead,  invested  in  railroads 

F.  E.  D.  C.  B farming  on  borrowed 

G.  F.  E.  D.  B.  A presence  of  foreign 

F.  E.  C.  B relation  between,  and  labor  lost 

E.  C.  B syndicates  and   pools  formed  by  capitalists 

and  manufacturers  to  control  labor 
F timidity  of 

F.  E.  D.  B too  much,  invested  in  manufactures 

F.  E.  D.  B too  much,  invested  in  railroads 

E.  C.  B.  A CASTE,  absence  of 

E.  D.  C.  B CHILDREN,  employment  of 

E.  D.  B COMPETITION 

*  (13)  CONFIDENCE,  want  of 
B.  A CONGRESS,  unfavorable  and  reckless  legislation  in 

F.  E.  C CORNERS 

E.  D.  C.  B CORPORATIONS,  creation  of  large 

E.  C.  B monopoly  of 

E.  C.  B natural  resources  of  the  country  in  the  hands 

of 

F.  E.  D CREDITS,  extended  commercial 

F.  E.  D.  B CREDIT  SYSTEM 

G.  E.  C.  A CROPS,  small 

F.  A CURRENCY,  agitation  of  the  silver  question 

F.  A coinage  of  the  silver  dollar 

F.  A contraction  of  the 

*  The  figures  placed  in  this  column  are  referred  to  on  page  76. 
245 


246  APPENDICES 

F.  A decrease  of  gold 

F dishonest 

F.  A    distrust  of  the  silver  dollar 

F.  A faulty  financial  system 

F.  A inflation  of  the 

F.  B.  A not  increased  in  proportion  to  the  uses 

F.  A overissue  of  paper  money 

F scarcity  of 

F.  A uncertain  value  of  the  silver  dollar 

F.  A uncertainty  of  the  future  monetary  standard 

F.  A unequal  value  of  gold  and  silver 

F want  of,  to  pay  the  debts  of  the  country 

when  due 

H (2)    DEMAND,  decrease  of  home 

C.  A DEMOCRATIC  PARTY  IN  POWER 

G DEPRESSIONS  ARE  MENTAL  DISEASES 

H (11)  ECONOMY,  enforced,  of  the  laboring  people 

H (12)          increased,  public  and  private 

E.  D.  C.  A want  of,  by  the  working  people 

C.  B.  A EMIGRATION,  lack  of,  to  the  public  lands 

G.  E.  C.  B.  A EDUCATION,  too  much,  and  indiscriminate 

G.  C.  B.  A ELECTIONS,  presidential 

E.  C.  B ENTERPRISES,  investments  in  unproductive 

E.  C.  B GOODS,  inattention  to  quality  manufactured 

E.  C undervaluation  of,  at  custom-houses 

G GOVERNMENT,  want  of  confidence  in 

H (9)  IDLENESS,  enforced 

C.  B.  A IMMIGRATION,  too  much,  of  the  poorer  class 

E.  C.  B IMMORALITY 

D.  C.  B.  A IMPORTATION   OF  WHAT   SHOULD   BE   MANUFAC- 

TURED AT  HOME 

E.  D.  C.  B INDUSTRIES,  establishment  of,  before  required 

(21)  INDUSTRIAL  SYSTEM,  erroneous 

E.  D.  B INDUSTRIAL  PLANTS,  enlargement  of 

F.  E.  C.  B INTEREST,  high  rates  of,   charged  the  producing 


F.  C.  B LABOR,  attitude  of,  versus  capital 

F.  E concentration  of,  in  cities 

D.  C.  A foreign  contract 

E.  C.  B inadequate  means  for  distributing  the  pro- 

ceeds of 

G.  E.  D.  C.  B prison 

H.  (10)          surplus  of 

E.  C.  B unequal  distribution  of  wages  among  differ- 
ent classes  of 

E.  D.  C.  B LAND,  cultivating  too  many  acres  of,  with  too 

little  labor 

G.  B LAWS,  natural 

E.  C.  B labor 

G.  E.  D.  C.  B LIVING,  extravagant 

E.  C.  B false  manner  of 

E.  C.  B variation  in  the  cost  of 

D.  B MACHINERY,  labor-saving 

F.  E.  D.  C.  B MARGINS,  dealing  in 

F.  E.  C.  B MARKETS,  manipulation  of,  by  speculators 

H (3)          want  of  foreign 


APPENDICES  247 

H (4)          want  of,  for  home  products 

E.  D.  C.  B MANUFACTURES,     efforts    of     manufacturers    to 

supply  the  inordinate  fancy  and  demand  of 
the  public  for  splendid  articles 
D increase  of 

E.  C.  B MONOPOLY,  land 

G.  D OVERPRODUCTION 

C t PARTY  POLICY,  exaggerating  the  effects  of 

C 1 PAUPERS,  importation  of 

C POLITICAL  CAMPAIGNS,  reaction  after 

A POLITICAL  DISTRUST 

(14)  PRICES,  inflation  of 

(18)  reduction  of,  to  cost  of  production 

(19)  PRODUCTION,  uneven 

(16)  variation  in  the 

(20)  want    of    adjustment    between,     and      con- 

sumption 

G PROSPERITY,  reaction  from 

H (6)  RAILROADS,  decreased  building  of 

D overbuilding  of 

F.  D too  much  capital  invested  in 

G.  F.  E.  C RENTS,  higher 

D.  C.  A REPUBLICAN  PARTY,  extravagance  of 

F.  E.  C.  B SECURITIES,  selling  valueless 

F.  E.  C.  B SPECULATION,    engaging    in,    rather    than    pro- 

ductive industries 
D STEEL,  introduction  of  Bessemer 

G.  C STRIKES 

E.  C.  B.  A TARIFF,  abuse  of  system  of,  among  importers 

G.  C.  B discussions  of  the 

G.  C.  B.  A discussions  on  the,  in  Congress 

C.  B.  A excessive 

G.  C.  A fear  of  Congressional  action  relative  to  the 

G.  C.  A high,  protective 

C.  A legislation  on  the 

G.  C.  A low  rate  of 

C.  A mode  of  collecting  duties  on  imported  ma- 
chinery - 

C.  A protective  policy  of  the 

G.  C.  A reduction  of  the 

G.  C.  A revision  of  the 

E.  C.  A unequal  duties  of  the 

C.  A unjust 

E.  C.  A want  of  proper  construction  of  the 

E.  C.  A want  of  proper  protection 

G.  E.  C.  B.  A TAXATION,  enormous 

E.  C.  B.  A unequal 

E.  C.  B TONNAGE  DUTIES,  manner  of  determining 

E.  D TRADING,  the  overdoing  of 

D.  C.  B TRAFFIC,  liquor 

H (15)  UNDERCONSUMPTION 

G.  D WAGES,  reduction  of 

(17)  variation  in  the  rates  of 

E.  C.  B WAGE  SYSTEM,  failure  of  the 

G WAR 

E.  D.  B WEALTH,  consolidation  of 


APPENDIX    D 


STATISTICS  OF  PIG  IRON  IN  THE  UNITED  STATES 
FROM   1896  TO   1910  INCLUSIVE 


DATB 

Actual 
Production 
of 
Pig  Iron 
for  the 
Month 

Total  Stocks 
in  Furnace 
and  Warrant 
Yards 
on  the  first 
of  each 
Month 

Annual  Rate 
of  the 
Month's 
Production 

Annual  Rate 
of  the 
Month's 
Consumption 

1896  January  .  .  . 
February  .  . 
March  

903,189 
808,300 
857,681 

662,754 
772,899 
817  463 

10,663,462 
10,193,989 
10,125  493 

9,341,722 
9,659,221 
9  530  365 

April  

825,253 

867  057 

10,068,085 

9  757  699 

May 

817  869 

892  960 

9  656  126 

9  336  220 

June  .  . 

757  701 

919  618 

9  243  957 

8  497  989 

July  . 

729  142 

981  782 

8  608  580 

7  543  208 

August  
September  . 
October  .... 
November  . 
December  .  . 

1897  January  .  .  . 
February  .  . 
March  . 

584,536 
499,350 
523,005 
563,284 
694,059 

749,952 
687,652 
784685 

1,070,563 
1,133,824 
1,186,374 
1,155,301 
1,110,601 

1,141,699 
1,251,848 
1  281  863 

6,901,296 
6,092,070 
6,174,838 
6,872,211 
8,194,734 

8,830,080 
8,964,035 
9  239  037 

6,142,164 
5,461,470 
6,547,714 
7,408,611 
7,821,558 

7,508,292 
8,603,855 
8  913  237 

April 

743  409 

309  013 

9044  g04 

8  921  265 

May  
June  
July  

738,571 
712,380 
711  299 

,319,308 
,282,976 
257  072 

8,696,073 
8,667,290 
8  374  977 

9,132,056 
8,978,138 
8  625  261 

August  
September  . 
October  
November  . 
December  .  . 

1898  January  .  .  . 
February  .  . 
March  
April  
May  . 

786,866 
823,449 
922,959 
962,586 
1,015,879 

1,004,568 
941,716 
1,041,950 
1,001,486 
998,766 

,236,215 
,212,837 
1,099,397 
1,016,422 
990,861 

,042,882 
,085,900 
,108,955 
,098,151 
,083,688 

9,265,890 
10,018,624 
10,867,093 
11,711,703 
11,961,154 

11,827,981 
12,275,941 
12,268,120 
12,184,743 
11,762,020 

9,546,426 
11,379,904 
11,862,793 
12,018,435 
11,336,903 

11,311,766 
11,999,280 
12,397,768 
12,358,299 
11,957,476 

••.  -".wj 

June 

928  924 

067  400 

11  301  912 

11  774  928 

July 

930  868 

027  982 

10  %0  220 

11  129  792 

August  .... 
September  . 
October  .... 
November  . 
December  .  . 

921,993 
908,297 
1,009,418 
1,009,719 
1,064,000 

1,013,851 
946,248 
845,925 
781,334 
705,372 

10,355,725 
11,050,948 
11,885,078 
12,284,910 
12,527,738 

11,166,961 
12,254,824 
12,660,180 
13,196,454 
13,076,750 

248 


APPENDICES 


249 


DATE 

Actual 
Production 
of 
Pig  Iron 
for  the 
Month 

Total  Stocks 
in  Furnace 
and  Warrant 
Yards 
on  the  first 
of  each 
Month 

Annual  Rate 
of  the 
Month's 
Production 

Annual  Rate 
of  the 
Month's 
Consumption 

1899  January  .  .  . 
February  .  . 
March  .  . 

1,068,180 

872,200 
1,076,936 

659,621 

608,462 
544,075 

12,576,962 
11,369,750 
12,680,047 

13,190,870 
12,142,394 
14,259,811 

April  

1,075,543 

412,428 

13,085,772 

13,850,424 

May  

1,104,158 

348,707 

13,000,570 

13,615,462 

June 

1,094  991 

297  466 

13,322  397 

14  119  962 

July 

1,115,801 

231  003 

13,137,510 

13  561  206 

August  
September  . 
October  .  .  . 
November  . 
December  .  . 

1900  January  .  .  . 
February  .  . 
M^arch 

1,172,810 
1,185,669 
1,283,909 
1,300,487 
1,314,334 

1,295,149 
1,188,320 
1  307  044 

195,695 
165,883 
153,006 
139,028 
133,499 

142,781 
173,523 
205  689 

13,808,874 
14,325,635 
15,116,997 
15,822,594 
15,475,218 

15,249,335 
15,490,600 
15  389  391 

14,166,618 
14,480,159 
15,284,733 
15,888,942 
15,363,834 

14,880,431 
15,104,608 
14  982  807 

April  

1,291,359 

239,571 

15,711,529 

15,059,149 

May 

1,313  071 

293  936 

15,460  357 

14  360  833 

June 

1,248,394 

385,563 

15,188,796 

13  664  736 

July 

1,109,778 

512,568 

13,066,739 

11,640,875 

August  .... 
September  . 
October  .... 
November  . 
December  .  . 

1901  January  .  .  . 
February  .  . 
March  

1,016,902 
958,959 
959,933 
969,038 
1,089,247 

1,196,724 
1,159,420 
1,291,748 

631,390 
728,432 
781,250 
740,679 
656,920 

626,092 
648,039 
609,356 

11,970,199 
11,667,329 
11,302,434 
11,789,969 
12,825,005 

14,090,460 
15,113,868 
15,209,289 

10,808,695 
11,033,513 
11,789,286 
12,795,077 
13,194,941 

13,827,096 
15,578,064 
16,374,681 

April 

1,319  227 

512  240 

16  050  562 

16  710  598 

May  
June  

1,375,293 
1,307,229 

457,237 
427,170 

16,192,964 
15  904  614 

16,553,768 
16,013,382 

July  

1,314,666 

418,106 

15,479,129 

15,614,165 

August  
September  . 
October  
November  . 
December  .  . 

1902  January  .  .  . 
February  .  . 
March 

1,335,135 
1,341,066 
1,462,150 
1,390,800 
1,322,646 

1,459,325 
1,284,520 
1,487,159 

406,853 
386,441 
359,396 
294,626 
240,059 

220,023 
161,183 
129654 

15,720,133 
15,942,490 
17,215,642 
16,921,400 
15,573,090 

17,182,375 
16,744,650 
17  510  093 

15,969,877 
16,267,030 
17,992,882 
17,576,204 
15,813,522 

17,888,455 
17,122,998 
17  807  609 

April  
May  

1,516,789 
1,574,410 

104,861 
95,141 

18,454,243 
18  537  413 

18,570,883 
18,654,535 

June  
July 

1,484,520 
1  476  707 

85,381 
82  102 

18,061,660 
17  387  036 

18,101,008 
17  456  348 

August  .... 

1,498,416 

76,326 

17,642,640 

17,582,820 

250 


APPENDICES 


DATB 

Actual 
Production 
of 
Pig  Iron 
for  the 
Month 

Total  Stocka 
in  Furnace 
and  Warrant 
Yards 
on  the  first 
of  each 
Month 

Annual  Rate 
of  the 
Month's 
Production 

Annual  Rate 
of  the 
Month's 
Consumption 

1903 

September  . 
October  .... 
November  . 
December  .  . 

January  .  .  . 
February  .  . 
March  
April  

1,442,944 

1,510,577 
1,469,447 
1,561,681 

1,518,889 
1,420,180 
1,637,083 
1  650  540 

81,311 
75,410 
79,892 
100,159 

109,940 
133,699 
169,615 
171  348 

17,555,822 
17,785,824 
17,878,274 
18,387,605 

17,883,696 
18,513,061 
19,275,337 
20  081  570 

17,626,634 
17,732,040 
17,635,070 
18,270,233 

17,598,588 
18,082,069 
19,296,133 
20,137,010 

May  

1  751  084 

166  728 

20  617,599 

20,138,031 

June  

1,721  854 

206692 

20,949,227 

20,233,439 

July  .  . 

1,611  229 

266  341 

18,970,927 

18,104,119 

1904 

August  .... 
September  . 
October  
November  . 
December  .  . 

January  .  .  . 
February  .  . 
March  

1,612,740 
1,599,669 
1,474,679 
1,092,321 
904,779 

971,097 
1,230,387 
1  485  892 

338,575 
409,375 
515,811 
619,621 
711,816 

759,421 
759,383 
734  947 

18,988,608 
19,462,634 
17,363,154 
13,289,911 
10,653,046 

11,465,212 
15,528,334 
17,543,112 

18,139,008 
18,185,402 
16,117,434 
12,183,571 
10,081,786 

11,465,668 
15,821,566 
18,202,380 

April  

1,599  018 

680008 

19,508,010 

19,513,230 

May  

1,570  057 

679  573 

18,536,802 

17,444,574 

June  

1,316  657 

770  592 

16,063,218 

14,918,526 

1905 

July  
August  .... 
September  . 
October  .  .  . 
November  . 
December  .  . 

January  .  .  . 
February  .  . 
March  . 

1,145,716 
1,178,558 
1,369,684 
1,474,290 
1,510,303 
1,648,309 

1,810,019 
1,624,328 
1  973  441 

865,983 
916,456 
894,172 
818,548 
767,943 
701,654 

603,900 
571,634 
543  065 

13,526,838 
13,914,588 
16,710,148 
17,406,124 
18,425,694 
19,460,690 

21,311,516 
21,174,426 
23,235,796 

12,921,162 
14,181,996 
17,617,636 
18,013,384 
19,221,162 
20,633,738 

21,703,508 
21,517,104 
23,530,612 

April  
May 

1,956,819 
1,994  017 

518,497 
541  918 

23,807,959 
23,477,947 

23,526,907 
22,648,459 

June  .  . 

1,824  480 

611,042 

22,197,840 

21,198,540 

July  .  .  . 

1,780,219 

694,317 

20,960,646 

20,089,506 

1906 

August  .... 
September  . 
October  .... 
November  . 
December  .  . 

January  .  .  . 
February  .  . 
March 

1,870,110 
1,901,064 
2,057,023 
2,018,901 
2,046,000 

2,068,893 
1,904,032 
2  165,632 

766,912 
738,766 
655,893 
551,552 
460,460 

No  official  re- 
ports made. 
(See  Footnote 
page  179) 

22,019,042 
23,129,633 
24,219,784 
24,563,301 
24,090,000 

24,359,526 
24,820,417 
25,498,587 

22,356,794 
24,124,109 
25,471,876 
25,656,405 

No  official  re- 
ports made. 
(See  Footnote 
page  179) 

APPENDICES 


251 


DATE 

Actual 
Production 

.  of 
Pig  Iron 
for  the 
Month 

Total  Stocks 
in  Furnace 
and  Warrant 
Yarda 
on  the  first 
of  each 
Month 

Annual  Rate 
of  the 
Month's 
Production 

Annual  Rate 
of  the 
Month's 
Consumption 

April  

2,073,222 

25,221,354 

May  

2,098,740 

24,711,021 

June  

1,970,733 

23,997,267 

July  . 

2  013  402 

23  706  176 

August  .... 
September  . 
October  .... 
November  . 
December  .  . 

1907  January  .  .  . 
February  .  . 
March  
April  
May  
June  

1,926,736 
1,970,962 
2,196,818 
2,187,665 
2,235,306 

2,205,607 
2,045,068 
2,226,457 
2,216,558 
2,295,505 
2,234  575 

I 

22,685,741 
23,979,978 
25,865,725 
26,616,582 
26,318,899 

25,969,229 
26,658,922 
26,214,717 
27,000,771 
27,010,052 
27,337,301 

1 

July  .  . 

2,255  660 

cf 

26,558,547 

August  

2,250  410 

ft 

26,496,758 

September  . 
October  .  .  . 
November  . 
December  .  . 

1908  January  .  .  . 
February  .  . 
March  .... 

2,183,487 
2,336,972 
1,828,125 
1,234,279 

1,045,250 
1,077,740 
1,228  204 

-2 
o 

3 
J 

03 
0 

s 

26,565,743 
27,505,942 
22,242,161 
14,532,631 

12,295,090 
12,849,222 
13,983,134 

ade  (See  footnote 

April  

1,149  602 

s 

13,849,962 

a 

May  

1,165  688 

9 

14,047,812 

June  

1,092  131 

o 

13,556,850 

July 

1  218  129 

0> 

13  827  062 

• 

August  
September  . 
October  
November  . 
December  . 

1909  January  .  .  . 
February  .  . 
March  
April  

1,359,831 
1,418,998 
1,567,198 
1,577,854 
1,740,912 

1,797,560 
1,707,340 
1,832,194 

1,738,877 

No  official  r 

14,879,992 
16,371,284 
17,668,650 
18,863,244 
19,926,190 

21,160,875 
22,256,240 
21,619,680 
21,156,130 

H 

1 

z 

May  
June  
July  
August  .... 
September  . 
October  
November  . 
December  .  . 

1,883,330 
1,930,866 
2,103,431 
2,248,930 
2,385,206 
2,599,541 
2,547,508 
2,635,580 

22,174,845 
23,599,440 
24,744,445 
26,479,290 
29,020,055 
30,524,585 
30,952,000 
31,033,030 

252 


APPENDICES 


DATS 

Actual 
Production 
of 
Pig  Iron 
for  the 
Month 

Total  Stocks 
in  Furnace 
and  Warrant 
Yards 
on  the  first 
of  each 
Month 

Annual  Rates 
of  the 
Month's 
Production 

Annual  Rates 
of  the 
Month's 
Consumption 

1910  January  .  .  . 
February  .  . 
March  . 

2,608,605 
2,397,254 
2  617  949 

1 

• 

g 

30,714,020 
31,249,840 
30  827  535 

« 

April 

2  483  763 

30,219  080 

o 

May 

2  391  180 

f-C   T-H 

28,142  230 

*H  1—  1 

June 

2  265  478 

27,563,340 

B,  ° 

July  

2,148,442 

25,296,325 

2  <*3 

August  .... 
September  . 
October  .... 
November  . 
December  .  . 

2,106,847 
2,056,275 
2,093,121 
1,909,780 

1,777,817 

0 

24,806,495 
25,917,830 
24,644,800 
23,235,535 
20,896,980 

O 

APPENDICES 


253 


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No.  1  Foundry 
Bessemer,  Pitts 
No.  2  Foundry 
Gray  Forge,  Ci 
No.  2  Foundry 


254 


APPENDICES 


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tals 
age 
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APPENDICES 


255 


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256 


APPENDICES 


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APPENDIX  G 


TABLE  SHOWING  THAT  EACH  ABNORMAL  ADVANCE 
IN  THE  PRICE  OF  PIG  IRON  HAS  BEEN  FOLLOWED 
BY  AN  INDUSTRIAL  DEPRESSION 

Lowest  and  highest  prices  of  Scotch  Pig  Iron  in  New  York  from  1825  to 
1882,  taken  from  the  American  Almanac 

Edited  by  AINSWORTH  R.  SPOFFORD,  Librarian  of  Congress 

Years  of  Depression  up  to  1886,  taken  from  the  First  Annual  Report  of  the 
United  States  Commissioner  of  Labor,  published  in  1886,  page  290 


Lowest 

Highest 

Year 

Low  High                    .... 

$36.00 

$76.00 

1825 

114%  advance 

Depression   .  . 
Low                        

50.00 
50.00 
50.00 
40.00 
40.00 
40.00 
40.00 
37.50 
37.60 

70.00 
55.00 
55.00 
55.00 
50.00 
47.50 
47.50 
47.50 
48.00 

1826 

1827 
1828 
1829 
1830 
1831 
1832 
1833 
1834 

High        

38.00 
38.00 

42.50 
62.60 

1835 
1836 

86%  advance 

Depression    .  . 
Low    

40.00 
37.50 
37.50 
32.50 
32.00 
23.50 
22.50 

70.00 
55.00 
45.00 
40.00 
37.50 
35.00 
32.00 

1837 

1838 
1839 
1840 
1841 
1842 
1843 

High                   .... 

30.00 
30  00 

35.00 
62.60 

1844 
1845 

133%  advance 

Depression    .  . 
Low                          

35.00 
30.00 
25.00 
22.50 
21.00 
19.00 
19.00 

42.50 
42.50 
37.50 
27.50 
24.00 
25.00 
31.00 

1846 
1847 
1848 
1849 
1850 
1851 
1852 

High       

28.50 
32.00 

38.00 
42.60 

1853 
1854 

123%  advance 

Depression   .  . 

26.50 
29.00 
28.00 
22.00 
22.00 
20.50 

37.00 
37.00 
37.50 
27.00 
31.50 
27.00 

1855 
1856 
1857 
1858 
1859 
1860 

257 


258 


APPENDICES 


Lowest 

Highest 

Year 

Low    

$20.00 

$24.50 

1861 

21.00 

33.00 

1862 

32.50 

45.00 

1863 

High 

43.00 

80.00 

1864 

300%  advance 

40.00 

55.00 

1865 

(Depreciated 

42.00 

55.00 

1866 

Currency) 

Depression 

.  . 

38.00 

49.00 

1867 

35.00 

45.75 

1868 

34.50 

45.00 

1869 

31.00 

37.00 

1870 

Low    

30.00 

3900 

1871 

High 

33.50 

61.00 

1872 

103%  advance 

Depression 

.  . 

37XX) 

52.00 

1873 

33.00 

45.00 

1874 

29.00 

41.00 

1875 

27.50 

34.00 

1876 

25.00 

28.00 

1877 

21.50 

26.50 

1878 

Low    . 

19.00 

30.50 

1879 

High 

21.00 

36.00 

1880 

84%  advance 

22.00 

26.00 

1881 

Depression 

23.00 

26.50 

1882 

21.00 

25.00 

1883 

18.00 

20.50 

1884 

17.75 

18.25 

1885 

18.25 

20.00 

1886 

20.50 

21.50 

1887 

18.00 

21.00 

1888 

17.00 

19.25 

1889 

Short          Depression 

caused    by    Baring 

XTr» 

18.00 

19.90 

1890 

Bros,  financial  diffi- 

INO 

Great 

culties  of   Novem- 

U0_ 

Change 

17.50 

17.75 

1891 

uer. 

in 
Prices 

QTirl 

15.00 

17.50 

1892 

Short          Depression 

ana 
consequently 

X 

13.75 

15.00 

1893 

caused    by    Silver 
Coinage          panic. 

no 
Depressions 

(June.) 
Short          Depression 

from 
Industrial 
Causes 

12.50 

13.37 

1894 

caused  by  depletion 
of    Gold    Reserve. 
(April.) 

Short         Depression 

12.00 

14.50 

1895 

caused     by    Vene- 
zuela Proclamation. 

(December.) 

Short          Depression 

12.50 

13.50 

1896 

caused  by  threaten- 
ing of  Gold  Basis. 

(July.) 

11.75 

12.75 

1897 

APPENDICES 


Lowest 

Highest 

Year 

Low           

$11.25 

$12.00 

1898 

High 

12.12 

25.00 

1899 

122%  advance 

Depression    .  . 

16.00 

25.00 

1900 

Low                           

15.60 

16.25 

1901 

High                 

17.50 

24.87 

1902 

60%  advance 

Depression   .  . 

15.87 

24.00 

1903 

Low                 

15.00 

17.62 

1904 

17.25 

19.00 

1905 

19.00 

26.50 

1906 

Hieh 

18.87 

27.50 

1907 

83%  advance 

Depression  caused  by 

Financial       Panic. 

Depression   .  . 

17.00 

18.75 

1908 

(October  1907.) 
Beginning  of  Depres- 
sion caused  by  High 

Cost   of    Construc- 

tion. 

16.50 

19.50 

1909 

16.00 

19.50 

1910 

260 


APPENDICES 


•98     g2 

'G      S'-fc 


•U 

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1  11 


g.s 


Hi! 


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oo.2 


sjsj 


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S-l  8s   S' 

"     "    " 


« 
o 


s 


Rank 


Various 


APPENDICES 


261 


1  a 

,-3          fl 


»    » 

w 


11 


la 


ss 


W 


» 


=1  = 


0=0 


002 

CO. 


Rank 


2  Various 


262 


APPENDICES 


£ 


2 


H 


gs~ 


|        I 


OOg       003       rf'S       C0 

8|   S|  S|   g 


^      oo         o 


1     IS' 

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;|   -|   2d  S| 


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Rank  |  H 


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APPENDICES 


263 


-2 
Q       >S 


II  m  sfBJ  il  s£  s|  il  sf  ci  is iS 


als 


s  s  s  s  i      * 


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NM  ^3  ^s  ^w 


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lj-8    I      ? 


a 


Rank 


2  Various 


264 


APPENDICES 


.So      . 


&l 


IJ  IM 

3  §3  a  £SJ< 

feij.2  g><*o> 

11  $55    2 


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8|   5|   3 


- 

- 


«       &       !      a 
1      I      I      1 

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Rank 


«<*sn-iovoi>oo» 


2       Various 


APPENDICES 


265 


j«          vJ   rt 

^      o£< 


§     a     ^   '       g     •     . 
g   s'S  8f  8S  fei  5?  8^ 

MM«OP 


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o-a 


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5    1    i    • 

§  si  si  2 


§ 


Rank 


»J      MM 


Various 


266 


APPENDICES 


i 


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D£ 


***W 


URfiini 


*  ***       VLJ  —'      CQ  > 

s    s^  s00    "^  ^g 


tl  «tf 


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rH    Oi 
£ 


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iii°4ict 

rK  a     fe-1 

60  02 


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02 


>1  af  si  1 1 1 1 

02  t-H  £^ 


o 


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|^    55       W       r§       M 


lll 


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s  oo*j  oo^  t>a  wg 

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w        NO         t.        oo         o>        2        Various 


APPENDIX   L 
DESCRIPTION   OF   DIAGRAMS 

*  Appendix  L  contains  two  diagrams.  They  are  placed  one  above  the  other 
for  the  purpose  of  illustrating  the  effect  of  high  and  low  prices  upon  the 
volume  of  construction.  As  usual,  the  quantity  of  pig  iron  consumed  is 
used  as  the  gauge  of  the  quantity  of  construction. 

DIAGRAM  OF  PRICES 

The  single  line  (P)  in  the  lower  diagram  represents  the  average  fluctua- 
tion in  prices  of  the  four  principal  grades  of  iron  in  the  five  chief  iron 
markets  of  the  United  States,  the  details  of  which  are  shown  in  Appendix  E. 
The  lowest  average  price  ever  reached  was  in  July,  1897.  For  the  pur- 
poses of  description,  this  price  will  be  called  "ZERO,"  and  the  line  P 
represents  the  percentage  of  fluctuations  above  zero,  during  this  period  of 
fifteen  years. 

DIAGRAM  OP  CONSTRUCTION 

The  space  between  the  irregular  line  F  F  and  the  base  line  B  B  repre- 
sents the  actual  monthly  consumption  of  iron  up  to  November,  1905,  after 
which  date  it  represents  the  estimated  consumption.  (See  footnote,  page 
179.)  This  space  we  call  "Approximate  Construction  Rate." 

The  space  between  the  lines  C  C  and  the  base  line  B  B  represents  the 
average  volume  of  construction  which  goes  on  all  the  time,  in  depressed 
times  as  well  as  in  active  times,  and  is  what  we  have  designated  as  "neces- 
sity construction." 

The  space  between  the  line  A  A  and  the  line  C  C  represents  the  highest 
practical  limit  of  the  extra  construction  which  creates  the  booms;  being 
the  highest  rate  reached  during  a  boom,  when  all  the  available  labor  is 
employed,  the  reserve  stocks  of  materials  are  exhausted  and  the  rate  of 
construction  is  limited  to  the  rate  materials  can  be  produced.  This  we 
call  "practical  capacity." 

The  line  D  D  represents  the  approximate  rate  at  which  contracts  for 
construction  are  made.  The  spaces  G,G,G,  represent  approximately  the 
amount  of  construction  materials  included  in  these  contracts,  in  excess  of 
the  capacity  of  the  country  to  produce  them  on  contract  time,  and  the 
spaces  H,H,H,  represent  the  time  in  which  this  excessive  construction  is 
carried  to  completion. 

It  will  be  observed  that  the  contracts  for  construction  which  resulted 
in  the  boom  of  1899  were  made  chiefly  during  the  low-priced  periods  of 
1897  and  1898;  that,  as  soon  as  prices  advanced  materially,  the  contracts 
for  construction  fell  off  rapidly,  and  that  the  excess  construction  contracted 
for,  as  per  space  G,  kept  actual  construction  up  to  the  maximum  height 
until  July,  1900,  when  actual  construction  dropped  to  the  necessity  basis 
within  three  months. 

Then  during  the  low-priced  period  of  1901,  the  chief  volume  of  contracts 
was  made,  which  resulted  in  the  boom  of  1902  and  1903. 

Then  during  the  low-priced  period  of  1904  and  1905,  the  chief  volume  of 
contracts  was  made,  which  brought  the  boom  of  1906  and  1907. 

These  three  illustrations  are  typical  of  what  has  occurred  just  before 
each  boom  in  the  five  industrial  nations,  ever  since  these  nations  became 
large  industrial  producers. 

267 


APPENDIX  M 

THE  IRON  PRODUCTION  OF 


V 

Long  Ton 

Long  Ton 

Metric 
Ton 

Metric 
Ton 

Metric 
Ton 

Metric 
Ton 

Metric 
Ton 

Great 
Britain 

United 
States 

Germany 

France 

Belgium 

Austria- 
Hungary 

Russia 

1500 

6,000 

5,000 

12,000 

1700 

12,000 

10,000 

22,000 

1740 

20,000 

i.obb 

18,000 

26,000 

1790 

68,000 

30,000 

30,000 

40,000 

1800 

190,000 

40,000 

40,000 

60,000 

1806 
1807 
1808 
1809 
1810 
1811 

243,851 
250,000 

55,000 

46,000 

85,000 

1812 

1813 
1814 

300,000 

100,000 

1815 
1816 
1817 
1818 

325,000 

114,000 

1819 

112  500 

1820 

400,000 

110,000 

90,000 

140,000 

1821 
1822 
1823 
1824 
1825 

455,166 
581,367 

195,588 

139,642 

1826 
1827 
1828 
1829 
1830 
1831 
1832 

690,000 
703,184 

"680,000 

130,000 
142,000 
180,000 
191,000 
200000 

126,006 

217,000 
220,000 
224,000 
225000 

35,000 

80,000 

102,952 

1833 
1834 

700,000 

236,000 
260,000 

1835 

294  000 

172,009 

1836 

1,000,000 

308,000 

1837 

331  000 

1838 

347,000 

1839 

1,248,781 

350000 

1840 
1841 

1,396,000 

290,000 

170,000 

350,000 
377,000 

73,000 

140,000 

185,000 

1842 

1,099  138 

215000 

399  000 

1843 

1,215,350 

422,000 

1844 

1,999,608 

171,000 

427,000 

1845 

1,512,500 

438,000 

134,563 

187,260 

1846 

765000 

522,000 

1847 

1,999,508 

800,000 

591,000 

1848 
1849 

800,000 
650,000 

205,000 

472,000 
414,000 

1850 
1851 

2,250,000 

563,755 

402,000 

570,000 
445000 

144,452 

140,000 

227,555 

1852 
1853 

2,701,000 

500,000 

522,000 
660000 

1854 

3  218  154 

657  337 

771  000 

1855 

3,218,151 

700,159 

849,000 

294,270 

268,637 

1856 
1857 

3,586,377 
3,659,477 

788,515 
712,640 



923,000 
992,000 

1858 

3,456  064 

629,548 

871,000 

268 


APPENDICES 
APPENDIX  M 

THE   WORLD  BY  NATIONS 


Metric 
Ton 

Metric 
Ton 

Metric 
Ton 

Long  Ton 

Figured  at 
Long  Ton 

Sweden 

Spain 

Italy 

Canada 

World's 
Production 

37  000 

60,000 

60000 

104  000 

92,000 

157,000 

110,000 

278,000 

130,000 

460,000 

180,000 

616,000 

65,000 

270,000 

1,010,000 

105,000 

20,000 

10,000 

62,000 

1,585,000 

130,000 

40,000 

2,774,000 

130,000 

40,000 

4,468,000 

270 


APPENDICES 


THE  IRON  PRODUCTION  OF 


Long  Ton 

Long  Ton 

Metric 
Ton 

Metric 
Ton 

Metric 
Ton 

Metric 
Ton 

Metric 
Ton 

Year 

Great 
Britain 

United 

States 

Germany 

France 

Belgium 

Austria- 
Hungary 

Russia 

1859 

3,712,904 

750,560 

864,000 

1860 

3,826,752 

821,223 

"536,000 

898,000 

319,934 

310,000 

335,255 

1861 

3,712,390 

653,164 

966,000 

311,000 

1862 

3,943,469 

703,270 

1,090,000 

356,000 

1863 

4,510,044 

846,075 

812,600 

1,156.000 

392,078 

1864 

4,767,951 

1,014,282 

904,700 

1,212,000 

449,875 

1865 

4,825,254 

831,770 

988,200 

1,203,000 

470,767 

299,432 

1866 

4,523,897 

,205,663 

1,046,900 

1,260,000 

482,404 

1867 

4  761,023 

,305,023 

,113,600 

1,229,000 

423,069 

1868 

4,970,206 

,431,250 

,264,400 

1,235,000 

435,754 

1869 

5,445,757 

,711,287 

,413,000 

1,380,000 

534,319 

1870 

5,963,515 

,665,179 

,391,100 

1,178,000 

565,234 

400,666 

359,531 

1871 

6,627,179 

,706,793 

,536,700 

859,000 

609,230 

393,352 

359,253 

1872 

6,741,929 

2,548,713 

1,988,400 

1,217,000 

655,565 

459,657 

399,253 

1873 

6,566,451 

2,560,963 

2,240,600 

1,381,000 

607,373 

534,508 

384,221 

1874 

5,991,408 

2,401,262 

1,906,200 

1,415,000 

532,790 

494,055 

380,219 

1875 

6,365,462 

2,023,733 

2,029,400 

1,448,000 

540,473 

463,163 

427,182 

1876 

6,555,997 

2,868,961 

1,846,400 

1,435,000 

490,508 

400,426 

441,433 

1877 

6,608,664 

2,066,594 

1,932,700 

1,506,000 

470,488 

387,630 

398,238 

1878 

6,381,051 

2,301,215 

2,147,600 

1,521,000 

518,646 

434,250 

417,239 

1879 

5,995,337 

2,741,853 

2,226,600 

1,400,000 

389,330 

404,162 

432,636 

1880 

7,749,233 

3,835,191 

2,729,000 

1,725,000 

608,684 

464,234 

448,411 

1881 

8,144,449 

4,144,254 

2,914,000 

1,886,000 

624,736 

543,640 

469,476 

1882 

8,586,680 

4,623,323 

3,380,800 

2,039,000 

726,946 

611,739 

498,400 

1883 

8,529,300 

4,595,510 

3,469,719 

2,069,430 

783,433 

698,856 

481,679 

1884 

7,811,727 

4,097,868 

3,600,612 

1,871,000 

750,812 

734,346 

509,519 

1885 

7,415,469 

4,044,526 

3,687,434 

1,630,648 

712,876 

714,784 

527,536 

1886 

7,009,754 

5,683,329 

3,528,658 

1,516,574 

697,110 

760,000 

532,104 

1887 

7,539,518 

6,417,148 

3,907,364 

1,507,850 

755,781 

719,980 

612,447 

1888 

7,998,969 

6,489,738 

4,337,421 

1,683,349 

826,984 

704,530 

683,315 

1889 

8,322,824 

7,603,642 

4,524,558 

1,722,480 

847,000 

790,227 

740,067 

1890 

7,904,214 

9,202,703 

4,685,451 

1,970,160 

781,958 

855,822 

926,471 

1891 

7,406,064 

8,279,870 

4,641,217 

1,897,000 

684,126 

921,846 

1,004,861 

1892 

6,709,255 

9,157,000 

4,937,461 

2,057,258 

753,268 

940,646 

1,070,800 

1893 

6,976,990 

7,124,502 

4,986,003 

2,032,567 

760,296 

982,247 

1,148,923 

1894 

7,427,342 

6,657,388 

5,380,038 

2,069,000 

818,597 

1,072,357 

1,332,489 

1895 

7,703,459 

9,446,308 

5,464,501 

2,003,868 

829,234 

1,127,673 

1,454,325 

1896 

8,563,209 

8,623,127 

6,372,575 

2,339,537 

959,414 

1,612,069 

1897 

8,796,465 

9,652,680 

6,864,405 

2,484,191 

1,034,732 

1,868,671 

1898 

8,631,151 

11,773,934 

7,215,927 

2,534,427 

979,101 

1,427,246* 

2,222,469 

1899 

9,305,319 

13,620,703 

8,142,017 

2,567,388 

1,036,185 

1,467,663 

2,710,972 

1900 

8,959,691 

13,789,242 

8,381,373 

2,669,966 

1,001,872 

1,472,695 

2,889,789 

1901 

7,928,647 

15,878,354 

7,860,893 

2,388,823 

764,180 

1,496,347 

2,831,680 

1902 

8,679,535 

17,821,307 

8,529,810 

2,404,974 

1,069,050 

1,216,500 

2,592,918 

1903 

8,935,063 

18,009,252 

10,085,634 

2,840,517 

1,216,500 

1,428,158 

2,453,958 

1904 

8,562,658 

16,497,033 

10,103,941 

2,974,042 

1,283,190 

1,454,803 

2,978,352 

1905 

9,592,737 

22,992,380 

10,813,979 

3,028,089 

1,290,400 

*1,  560,000 

2,977,981 

1906 

10,149,388 

25,307,191 

12,098,551 

3,266,580 

1,354,033 

*1,575,000 

2,618,977 

1907 

10,114,282 

25,781,361 

12,839,593 

3,532,233 

1,405,374 

*1,  823,761 

2,776,327 

1908 

9,289,840 

15,936,018 

11,813,511 

3,344,145 

1,182,311 

1,952,750 

2,751,000 

1909 

9,664,287 

25,795,471 

12,917,653 

3,544,638 

1,632,350 

1,947,300 

*2,817,000 

1910 

10,216,745 

27,298,545 

14,793,325 

4,032,459 

1,803,500 

1,990,684 

*2,956,000 

APPENDICES 


271 


THE  WORLD  BY  NATIONS    (Continued) 


Metric 
Ton 

Metric 
Ton 

Metric 
Ton 

Long 
Ton 

Figured  at 
Long  Ton 

Sweden 

Spain 

Italy 

Canada 

World's 
Production 

185  019 

50000 

7,300,000 

266  620 

9,250  000 

9,300,000 

9,250  000 

10,400  000 

11,575,000 

300  338 

70  000 

11,900000 

298  761 

12,500  000 

339  409 

13,925,000 

345  720 

14,675  000 

327  852 

13  500  000 

350  539 

13,675  000 

352  467 

13  475  000 

344  536 

13,675  000 

340  858 

14,118  000 

342,547 

13,950,000 

405,713 

85939 

21  000 

17,950  000 

430  042 

114  394 

27  800 

19,400  000 

398,945 

120  064 

24  778 

20,750,000 

422  647 

139  920 

24  306 

21,000000 

430,534 

126,269 

24  778 

19,475,000 

464  737 

159  225 

15  991 

19,300  000 

442,457 

156,204 

12,291 

20,386,000 

456,625 

188  634 

12  265 

22,171  000 

457,052 

212,116 

12,538 

23,575,000 

420,665 

197,874 

13  473 

25,345,000 

456,103 

179,782 

14,346 

19,439 

27,157,000 

490,913 

278,460 

11,930 

21  331 

25,718,000 

485  664 

211  436 

12  729 

37  896 

26,474  000 

453,421 

234,563 

8,038 

49,953 

24,813,000 

462,809 

223,798 

10  329 

44  791 

25,600,000 

462,930 

206,452 

9,213 

37,829 

28,871,000 

488,400 

246,326 

60030 

Japan 

China 

India 

Mexico 

30,500,000 

530  891 

146  940 

8393 

53  796 

32,700  000 

531,766 

113,492 

68,755 

23,652 

35,500,000 

497,727 

295  840 

19  218 

94  077 

19  631 

40,841  348 

518,263 

289,315 

23,990 

86,090 

40,087,616 

528,375 

296,858 

15  819 

244,976 

24,495 

28,805 

39,968,511 

506,825 
506,825 
528,525 
518,967 
604,789 
615,778 
563,300 
443,000 
604,300 

350,284 
380,000 
294,000 
315,635 
382,309 
355,240 
430,000 
420,000 
425,000 

43,335 
75,279 
89,340 
140,818 
133,158 
135,296 
80,000 
147,000 
343,600 

319,557 
265,418 
270,942 
468,003 
541,957 
581,146 
563,672 
677,090 
740,210 

32,435 
36,515 
112,328 
190,375 
38,945 
42,919 
147,217 
*161,020 
*162,000 

15,805 
38,873 
38,770 
32,314 
50,622 
61,148 
66,409 
74,000 
130,000 

36i756 
40,978 
47,042 
47,000 
40,000 
38,000 
39,350 
35,933 

21  ',550 
26,554 
4,229 
25,319 
16,238 
16,615 
58,859 
45,000 

43,495,847 
46,368,000 
45,291,937 
54,034,508 
58,689,556 
60,179,960 
48,174,788 
60,365,780 
65,607,788 

From  various  sources,  including  Mulhall's  Dictionary  of  Statistics,  American  Iron  and 
Steel  Association,  James  Watson  &  Co.,  Glasgow,  Iron  Age,  and  various  foreign  author- 
ities. 

*Estimated. 


APPENDIX  O 

RAILROAD  MILEAGE  OF  THE  UNITED  STATES 


Years 

Miles 
Built 

Miles  in 
Operation 

Years 

Miles 
Built 

Miles  in 
Operation 

1830 

23 

1871 

7,379 

60,301 

1831 

72 

95 

1872 

5,870 

66,171 

1832 

134 

229 

-1873 

4,097 

70,268 

1833 

151 

380 

1874 

2,117 

72,385 

1834 

253 

633 

1875 

1,711 

74,096 

1835 

465 

1,098 

1876 

2,712 

76,808 

1836 

175 

1,273 

1877 

2,274 

79,082 

1837 

224 

1,497 

1878 

2,665 

81,747 

1838 

416 

1,913 

1879 

4,809 

86,556 

1839 

389 

2,302 

1880 

6,711 

93,262 

1840 

516 

2,818 

1881 

9,846 

103,108 

1841 

717 

3,535 

1882 

11,569 

114,677 

1842 

491 

4,026 

1883 

6,745 

121,422 

1843 

159 

4,185 

—1884 

3,923 

125,346 

1844 

192 

4,377 

1885 

2,975 

128,320 

1845 

256 

4,633 

1886 

8,018 

136,338 

1846 

297 

4,930 

1887 

12,876 

149,214 

1847 

668 

5,598 

1888 

6,900 

156,114 

1848 

398 

5,996 

1889 

5,162 

161,276 

1849 

1,369 

7,365 

-U890 

5,915 

167,191 

1850 

1,656 

9,021 

1891 

4,844 

172,035 

1851 

1,961 

10,982 

1892 

3,656 

175,691 

1852 

1,926 

12,908 

-*893 

4,143 

179,834 

1853 

2,452 

15,360 

1894 

2,899 

182,733 

1854 

1,360 

16,720 

1895 

1,895 

184,628 

1855 

1,654 

18,374 

1896 

2,053 

186,681 

1856 

3,642 

22,016 

1897 

2,163 

188,844 

"1857 

2,487 

24,503 

1898 

2,026 

190,870 

1858 

2,465 

26,968 

1899 

3,466 

194,336 

1859 

1,821 

28,789 

1900 

4,628 

198,964 

1860 

1,837 

30,626 

1901 

3,324 

202,288 

1861 

660 

31,286 

1902 

4,965 

207,253 

1862 

834 

32,120 

1903 

6,169 

213,422 

1863 

1,050 

33,170 

1904 

6,690 

220,112 

1864 

738 

33,908 

1905 

5,084 

225,196 

1865 

1,177 

35,085 

1906 

5,565 

230,761 

1866 

1,716 

36,801 

^1907 

6,188 

236,949 

1867 

2,249 

39,250 

1908 

3,654 

240,603 

1868 

2,979 

42,229 

1909 

3,475 

244,078 

1869 

4,615 

46,844 

1910 

3,918 

247,996 

1870 

6,078 

52,922 

First  Annual  Report  Com.  of  Labor,  p.  68. 
Statistical  Abstract  U.  S.  1908,  p.  248. 

272 


APPENDIX  P 


BUILDING  PERMITS  OF  FIFTY-SEVEN  CITIES,  1906  AND  1907* 


Cities 

1906 

1907 

Percentage  of  Gain  or  Loss 
between  1906  and  1907 

Gain 

Loss 

Baltimore  

8,611,708 
2,132,469 
2,684,399 
8,686,030 
64,822,030 
1,458,105 
12,972,794 
2,231,742 
6,911,190 
717,187 
7,000,996 
13,275,250 
2,761,023 
1,048,680 
1,012,790 
2,181,306 
3,732,915 
5,530,971 
10,765,480 
1,242,138 
5,116,917 
18,158,540 
811,828 
9,713,284 
9,466,150 
4,346,767 
1,121,653 
2,840,212 
3,018,890 
10,411,328 
5,563,437 

6,439,580 
1,964,079 
2,448,598 
8,411,000 
59,093,080 
2,729,345 
15,888,407 
1,700,490 
7,737,062 
653,503 
6,349,604 
14,226,300 
2,483,735 
1,077,745 
1,343,125 
2,053,755 
4,026,970 
5,787,556 
9,611,922 
1,063,055 
3,032,548 
13,304,696 
719,015 
10,771,244 
10,006,485 
4,957,999 
1,295,112 
2,078,044 
2,804,882 
9,543,520 
4,710,523 

87 
22 

11 

7 

2 
32 

9 
5 

18 
6 
14 
15 

6 
39 

25 

7 
8 
3 

8 

23 

8 
9 

10 
6 

10 
14 
47 
26 
11 

26 
7 
8 
15 

27 
2 
25 

19 
10 
13 

Birmingham  .... 
Bridgeport 

Buffalo 

Chicago 

Cambridge 

Cleveland  

Chattanooga  .... 
Cincinnati    
Davenport  
Denver.    . 

Detroit.    . 

Duluth   

Evansville    

Fall  River  
Grand  Rapids  .  .  . 
Hartford  

Indianapolis  .... 
Kansas  City  .... 
Little  Rock    
Louisville  
Los  Angeles  
Manchester 

Milwaukee  

Minneapolis  .... 
Memphis    

Mobile    

Nashville  

New  Haven 

Newark  
New  Orleans  .... 

Manhattan  

126,075,565 
65,066,325 
28,889,090 

91,722,799 
64,150,107 

21,648,874 

Brooklyn    

Bronx  

New  York    
Omaha 

220,030,980 
4,273,050 
40,711,510 
1,077,471 
15,116,252 

177,521,780 
4,536,643 
36,659,655 
1,500,192 
13,145.311 

Philadelphia  .... 
Patterson  
Pittsburg  .  . 

'  From  Chicago  Contractor. 
273 


274 


APPENDICES 


Cities 

1906 

1907 

Percentage  of  Gain  or  Loss 
between  1906  and  1907 

Gain 

Loss 

Reading               . 

1,631,245 
6,175,499 
1,069,737 
29,938,693 
9,537,449 
1,111,550 
56,574,844 
2,075,075 
11,980,488 
3,710,859 
1,073,397 
3,313,261 
2,249,355 
827,408 
4,696,970 
3,032,855 

12,414,457 
2,939,403 
2,224,833 

1,499,550 
6,752,615 
1,667,563 
21,893,167 
9,750,000 
1,951,471 
34,927,396 
2,423,849 
13,573,270 
5,778,876 
1,125,825 
4,222,282 
4,183,800 
1,233,832 
3,400,665 
9,985,425 

9,890,464 
3,068,896 
2,486,861 

9 
55 

2 
75 

16 
14 
56 
5 

86 
49 

228 

4 
11 

8 
27 
38 

27 
27 
21 

Rochester 

St  Joseph 

St  Louis  

St.  Paul  

San  Antonio  .... 
San  Francisco  .  .  . 
Scranton  

Seattle  

Spokane  

South  Bend  

Syracuse  

Salt  Lake  City  .  . 
Topeka  

Toledo 

Tacoma 

Trenton           .   . 

Washington  
Worcester  

Wilkesbarre  

Totals 

667,032,499 

580,492,196 

APPENDIX   Q 


UNFILLED  ORDERS  OF  UNITED  STATES  STEEL 
CORPORATION 


Year 

* 

Date 

* 

Tonnage 

Average 
Monthly 
Rate  of 
INCREASE 

Average 
Monthly 
Rate  of 
DECREASE 

1901 
1902 

December  31  
January  
February           .  .  . 

4,497,794 

40,553 
40,553 

March    
April      

40,553 
40,553 

May  

40,553 

June  

40,553 

July  1  

4,741,993 

33,671 

August           

33,671 

September  

33,671 

October  1  
November.          .  . 

4,843,007 

168,082 
168,082 

1903 

December  31  
January  

5,347,253 

168,082 
21,155 

February  

21,155 

IMarch 

21,155 

April  1 

5,410,719 

248  047 

248,047 

June 

248  047 

July  1 

4,666,578 

312  613 

August 

312  613 

September 

312  613 

October  1 

3,728,742 

171  206 

1904 

November  
December  31  .... 
January  

3,215,123 

307,279 

171,206 
171,206 

February  
March  31 

4,136  961 

307,279 
307,279 

April 

314  895 

May           .... 

314  895 

June  30       

3,192,277 

314  895 

July 

54947 

August  

54,947 

September  30  
October 

3,027,436 

556  256 

54,947 

November  
December  31  .... 

4,696,203 

556,256 
556,256 

*From  official  Reports  of  the  U.  S.  Steel  Corporation. 
275 


276 


APPENDICES 


Year 

* 

Date 

* 
Tonnage 

Average 
Monthly 
Rate  of 
INCREASE 

Average 
Monthly 
Rate  of 
DECREASE 

1905 

January 

300452 

February 

300*452 

Marck  31  

5,597,560 

300,452 

April 

O^  QfiS 

May.  . 

255  968 

June  30 

4  829  655 

255  968 

July   .. 

345  241 

August  
September  30  
October  

5,865,377 

345,241 
345,241 
579  903 

November  

579,903 

1906 

December  31  .... 
January  

7,605,086 

579,903 

195  458 

February  

195  458 

March  31  

7,018,712 

195  458 

April  

69  708 

May  

69708 

June  30   

6,809,589 

69708 

July   . 

375,765 

August 

375  765 

September  30  .... 
October 

7,936,884 

375,765 
184  279 

November  

184,279 

1907 

December  31  .... 
January. 

8,489,718 

184,279 

148  620 

February 

148  620 

March  31 

8  043  858 

148  620 

April  

146  660 

May  

146  660 

June  30    

7  603  878 

146  660 

July   . 

392  957 

August  

392  957 

September  30  
October  

6,425,008 

392,957 
600,152 

November  

600,152 

1908 

December  31  .... 
January  

4,624,553 

600,152 
286,403 

February 

286  403 

March  31 

3  765  343 

286  403 

April 

150  489 

May. 

150  489 

June  30 

3  313  876 

150,489 

July 

36033 

August  

36033 

September  30  
October  

3,421,977 

36,033 
60,517 

November  

60,517 

1909 

December  31  
January  

3,603,527 

60,517 

20,310 

From  official  Reports  of  the  U.  S.  Steel  Corporation. 


APPENDICES 


277 


Year 

* 
Date 

* 

Tonnage 

Average 
Monthly 
Rate  of 
INCREASE 

Average 
Monthly 
Rate  of 
DECREASE 

February  

20310 

March  31  

3,542,595 

20,310 

April  

171,781 

May  

171,781 

June  30 

4,057,939 

171  781 

July   . 

246,298 

August 

246  298 

September  30  
October 

4,796,833 

246,298 
376  733 

November  

376,733 

1910 

December  31  .... 
January  

5,927,031 

376,733 

174,839 

February 

174,839 

March  31 

5,402,514 

174,839 

April 

381,573 

l^ay 

381,573 

June  30 

4,257,794 

381,573 

July  31 

3,970,931 

287,763 

August  31  
September  30  
October  31 

3,537,128 
3,158,106 
2,871,949 

433,803 
379,022 
286,157 

November  30    ... 
December  31  .... 

2,760,413 
2,674,757 

111,536 
85,656 

1  From  official  Reports  of  the  U.  S.  Steel  Corporation. 


INDEX 


INDEX 


Abnormal  advances  in  prices  of 
iron,  ten  periods  of,  204 

Abnormal  decreases  in  prices  of 
iron,  ten  periods  of,  208 

Abnormal  prices,  recurrence  of, 
205 

Accumulation  and  production,  28 

Advance  in  prices,  cause  of,  122 

Advent  of  industrial  depressions, 
13-17 

Agriculture,  in  U.  S.  in  the  nine- 
teenth century,  2-3;  introduction 
of  machinery  in,  4,  6,  7;  surplus 
products  in  U.  S.  up  to  1845,  4-5; 
limit  of,  95 

Alleged  causes  of  industrial  depres- 
sions, 67,  71-78,  202 

Analysis  of  industrial  depressions, 
82;  of  business,  95;  of  construc- 
tion, 106;  of  boom  period  prices, 
120  et  seq.',  of  the  depression  of 
1834-35,  141;  of  1846-48,  144; 
of  1855-58,  145;  of  1865-70,  147; 
of  1872-76,  149;  of  1882-85,  155; 
of  1890-97,  165  et  seq.;  of  con- 
struction during  1904-07,  182; 
of  building  permits,  184;  of  de- 
pressions of  1900  and  1903,  198 

Analytic  reasoning,  90 

Annual  production  of  iron,  206 

Antiquity  of  manufacturing,  2 

Arnold,  Thomas,  41 

Average  stock  of  iron  carried,  87; 
of  pig  iron  carried,  207 


B 

Bad  legislation,  70 

Barometer   of   trade  —  iron,   85   et 

seq.,  212 
Belgian  business  conditions  in  1870- 

73,  153 

Benner's  prophecies,  56 
Birth  of  the  manufacturing  age,  7 
Boom  of  iron  production  in  1899, 169 
Boom  periods,  analysis  of  prices  in, 

120  et  seq. 
Boom  prices,  cause  of,  118;  small 

profit  in  — table,  119 
Booms  in  iron  market,  34 
Booms,  no  uniformity  in,  192 
Building  operations,  197 
Building  permits  of  1907,  183 
Bureau  of  Labor,   established,   16; 

summary  of  work  of,  75-78 
Business  influenced  by  price  of  iron, 
85;  analysis  of,  95;  the  four  great 
systems  of,  97;  uniformity  of  vol- 
ume of,  101 ;  conditions  in  Europe 
in  1870-73,  151;  revival  of  1902, 
173;  of  1904,  179 


Cairnes,  Professor,  24 

Capital,  circulating  and  fixed,  58-62 

Cause    of    abnormal    advance    in 

prices,  122 
Causes  of  industrial  depressions,  28, 

159,  241-247;  search  for,  71,  80, 

100;  of  strikes,  110 
Circulating  capital,  58-62 
Civilization  and  labor,  52 


281 


282 


INDEX 


Commerce,  definition  of,  23;  limit 
of,  95;  growth  of,  96 

Commodities  not  circulating  cap- 
ital, 59 

Comparison  of  corn  crops,  45 

Connection  between  iron  production 
and  industrial  depressions,  83 

Construction,  analysis  of,  106  et 
seq.;  during  1904-07,  182;  fluc- 
tuation of,  104,  110;  table  show- 
ing connected  events,  114;  high 
prices  of,  the  real  cause  of  de- 
pressions, 130;  the  key  to  pros- 
perity, 136;  need  of  monthly 
knowledge  of,  219;  investment,  213 

Construction  materials,  methods  of 
buying,  112;  supply  and  demand, 
221 

Construction  revivals  and  low 
prices,  192 

Contracts  and  construction,  182 

Controlling  force  of  all  business,  137 

Convict  labor,  69 

Coolie  labor,  69 

Corn  crops  of  1900  and  1901,  45 

Crises,  industrial,  early  theories 
concerning,  14-17 

Crops  as  affecting  industry,  43 

Cycles  of  "ups  and  downs,"  55 

Cyclic  delusions,  203,  2o7 


D 


Decreasing  cost  of  iron,  208 

Definition  of  "panic,"  18;  of  "in- 
dustrial depression,"  19;  of  farm- 
ing, 22;  of  manufacturing,  23; 
of  commerce,  23;  of  production, 
22,  24;  of  reaction,  51 

De  Laveleye,  Georges,  154 

Delivery  and  demand,  115;  future 
vs.  immediate,  110 

Delusions,  cyclic,  203,  207 

Demand  and  delivery,  115;  ver- 
sus supply,  26,  32 


Depletion  of  gold  reserve,  162 
Desire   for   gain    the   origin   of   all 

industries,  127,  137 
Development  of  the  U.  S.,  10 
Differences  of  production,  41 
Doyle,  Sir  Conan,  90 

E 

Early  theories  of  industrial  crises, 
13-17 

Economic  conditions  of  the  nine- 
teenth century,  2;  revolution  in,  7 

Economic  tools,  64 

Effect  of  the  crops  on  the  industries, 
44 

Elimination  of  alleged  causes  of 
industrial  depressions,  73,  74 

"Endless  chain,"  the,  162,  164 

Europe,  industrial  conditions  in 
1832-35,  143;  industrial  depres- 
sions in,  79 

Events  connected  with  construc- 
tion, 114 

Evolution  in  occupations,  1 

Exports  of  grains,  8 


F 


Factory  system,  inauguration  of, 
5 

Failure  of  governmental  investiga- 
tions, 135 

Falling  prices,  73 

Families  and  houses  in  1900,  127 

Farm  machinery,  introduction  of, 
develops  wealth,  7 

Farming,  definition  of,  22 

Finance,  limit  of,  95;  growth  of,  96 

Financial  difficulties  of  1890-96, 
164 

Financial  panics,  18,  21,  163,  165, 
181 

Final  analysis  of  responsibility,  126 

Fixed  capital,  58-62 


INDEX 


283 


Fluctuation    of    construction,    104, 

110;  in  price  of  materials,  cause 

of,  117       ' 
Foreign  capital,  69 
Fredericksen,  N.  C.,  63 
French  business  conditions  in  1870- 

73,  153 
Furnace  capacity   (iron)   of  U.  S., 

206 
Future  vs.  immediate  delivery,  110 

G 

German  industries  in  1870-73,  152 
Gold,  large  exportation  of,  67 
Gold  reserve,  depletion  of,  in  1894, 

162 
Government   investigations,   failure 

of,  135 
Great  Britain,  iron  supply  in  1853, 

146;  business  condition  in  1870- 

73,  151;  panic  of  1890,  161 
Great  epoch  of  nineteenth  century,  4 
Growth  of  commerce,  96;  of  finance, 

96;  of  the  industrial  system  of  the 

U.  S.,  99 


Hamilton,  Alexander,  3  f.n. 
High  prices  and  accumulation,  29; 
and  industrial  depressions,  76,  79, 
159,  202;  retard  consumption,  124; 
of  1899,   170;  of  iron  bound  to 
occur,  204;  no  benefit,  222;  ver- 
sus low  prices,  130,  217 
Hill,  James  J.,  46 
Houses  and  families  in  1900,  127 
How  to  restore  prosperity,  232 
Human  desire,  no  limit  to,  26 


Illustration  of  the  proposed  remedy, 
226 


Immigration,  69 

Imports,  large,  67 

Inauguration  of  factory  system  in 
U.  S.,  5;  railroads,  5;  steam  navi- 
gation, 5 

Individual  acts  and  national  indus- 
tries, 125 

Industrial  conditions  in  Europe  in 
1832-35,  143 

Industrial  depressions,  advent  of, 
13-17;  causes  of,  28,  159;  and 
poor  crops,  43;  and  presidential 
elections,  49-51;  a  mental  dis- 
ease, 63;  and  the  tariff,  66;  al- 
leged causes,  67,  71-78;  and  high 
prices,  76,  79;  search  for  causes 
of,  71,  100,  157;  contemporane- 
ousness of,  80;  analysis  of,  82; 
iron  production  the  barometer 
of,  82,  158;  in  Europe,  79,  143; 
the  result  of  falling  off  of  con- 
struction, 105;  final  analysis  of 
responsibility  for,  125;  real  cause 
of,  130;  of  1900,  173;  no  uni- 
formity in  length  of,  192;  rem- 
edy for,  218;  tables  illustrating, 
257 

Industrial  development,  maladies 
of,  12 

Industrial  maladies,  efforts  to  dis- 
cover causes  of,  15 

Industrial  revival  and  construction, 
107;  of  1835,  142 

Industrial  system  of  the  U.  S., 
growth  of,  99 

Industries,  iron  the  foundation  of, 
89;  of  a  nation,  125;  the  great 
stimulating  motive  of,  127 

Information  of  unfilled  orders 
needed,  221 

Influx  of  foreign  capital,  69 

Introduction  of  agricultural  ma- 
chinery, 4,  6,  7 

Investment  construction,  106  et 
seq.,  213 


284 


INDEX 


Iron,  influence  of  price  of,  on  busi- 
ness, 85;  average  stock  carried, 
87,  207;  the  foundation  of  the 
industries,  89;  famine  of  1864, 
148;  ten  periods  of  abnormal  ad- 
vance, 204;  of  abnormal  decrease, 
208;  annual  production  of,  206; 
decreasing  cost  of,  208;  monthly 
prices  of,  in  Philadelphia,  237,  238; 
prices  of  Scotch  pig  in  New  York, 
239;  statistics  of,  248-252 

Iron  consumption  of  1885-90,  160; 
of  1893,  161;  of  1895-99,  162;  of 
1897,  163;  of  1897-99,  168;  of 
1903,201;  of  1904-07, 179, 181, 199 

Iron  market,  booms  in,  34;  vagaries 
of,  36 

Iron  prices  in  1836,  142;  in  1854, 
145;  in  1864,  147;  in  1873,  150; 
in  1879,  155;  in  1897-98,  167;  in 
1899,  169;  in  1900,  173;  in  1904- 
07,  179,  185;  table  illustrating 
prices  from  1800  to  1910,  278 

Iron  production  and  industrial  de- 
pressions, 82;  table  showing  gains 
and  losses,  108;  tables  showing 
production  and  consumption  from 
1800  to  1910,  278 

Iron  supply  in  1854,  145;  in  1864, 
147;  in  1872,  149;  in  1879,  155; 
in  1897,  167,  169 


Jevons,  Professor,  14,  23,  25,  26 
Juglar,  Clement,  54 

K 
Kent,  Dr.  William,  38,  206 


Labor    and    civilization,    52;    chief 
products  of,  103 


Labor  Bureau,  established,  16;  report 
on  causes  of  depressions,  245-247 

Langton,  William,  63 

Laveleye,  Georges  de,  64 

Laws  suggested,  219 

Legislation,  unwise,  70 

Limits  of  agriculture,  commerce 
and  finance,  95 

Liquidation  and  adjustment,  110 

Low  prices  of  1836,  142;  of  1846, 
145;  of  1852,  145;  of  1861,  147; 
of  1871,  149;  of  1897-98,  167;  of 
1904,  177;  versus  high  prices,  130, 
217;  and  constructive  revivals, 
192 

M 

Maladies  of  industrial  systems,  12; 
efforts  to  discover,  15 

Manufacturing,  antiquity  of,  2; 
definition  of,  23;  birth  of  age  of,  7 

Materials,  time  of  demand  for,  113; 
cause  of  fluctuation  in  prices  of,  117 

Maximum  production  and  maximum 
sale,  193 

Maximum  prosperity,  final  analysis 
of,  211 

Mental  influence  on  industrial  con- 
ditions, 63 

Methods  of  buying  construction 
materials,  112 

Money,  large  transfers  of,  68;  ver- 
sus production,  25 

Motive  prompting  all  industries, 
127  et  seq. 

Mill,  John  Stuart,  24 

Mills,  John,  55,  63 

Mulhall's  Dictionary  of  Statistics, 
extracts  from,  260 


N 


Necessity  construction,  106,  et  seq.; 
versus  investment  construction  in 
1904-07,  182 


INDEX 


285 


Need  of  monthly  information  of 
construction  demands,  219 

Need  of  remedy,  196 

New  York  Herald,  197 

Nineteenth  century,  great  epoch  in, 
4;  economic  revolution  in,  8 

No  uniformity  in  stages  of  "ups 
and  downs,"  191 


Object    lessons    of    fluctuations    of 

the  industries  in  1897-1903,  175 
Object  of  the  proposed  remedy,  226 
Occupations,  evolution  in,  1 
Optional  construction,  106  et  seq. 
Orders  unfilled,  information  needed 

concerning,  221 

Origination  of  freight  tonnage,   43 
Overproduction,  theory  of,  22-42 


Pareto,  Vilfredo,  63 

Panic  of  1837,  142,  156;  of  1857,  146, 
156;  of  1873,  150,  156;  of  1890, 
160;  of  1893,  161;  of  1901,  165; 
of  1907,  179,  181,  197 

Panics,  financial,  18-21 

Periodicity,  54 

Periods  of  revival  and  decline,  1896- 
1903,  196 

Piermez,    M.,  64 

Pig  iron,  average  stock  carried,  207; 
monthly  statistics  concerning, 
248-252;  world's  production  of, 
268 

Poor  crops  and  industrial  depres- 
sions, 43 

Predicting  length  of  depressions,  191 

Premiums  for  quick  delivery,  121 

Presidential  campaign  of  1896,  163 

Presidential  elections  and  industrial 
depressions,  49-51 

Price,  Bonamy,  15 


Prices,  effect  of,  on  production,  29; 
cause  of  drop  in,  117;  and  law 
of  supply  and  demand,  117;  cause 
of  advance  in  boom  periods,  118; 
causes  of  abnormal  advance  in, 
122;  of  iron  in  1836,  142;  in  1854, 
145;  in  1864,  147;  in  1873,  150; 
in  1879,  155;  in  1897-98,  167;  in 
1899-1900,  173;  in  1904-1907, 
179,  185 

Production,  definition  of,  22,  24; 
and  accumulation,  28;  surplus,  31; 
differences  of,  41 

Products  of  man's  labor,  103 

Profits  in  holding  iron,  36 

Proposed  remedy,  object,  222;  il- 
lustration, 226;  effect,  227 

Prosperity,  how  to  restore,  232 

R 

Railroad  earnings,  43;  construction 

in  1833-35,  142;  in  1836-37,  143; 

in   1871,    149;   in   1882-85,    155; 

mileage  in  U.  S.,  272 
Railroads  first  operated  in  U.  S.,  5 
Reaction,  51 
Real  cause  of  industrial  depressions, 

130 

Reasoning,  analytic  and  synthetic,  90 
Recurrence  of  abnormal  prices,  205 
Regulation  of  surplus  production,  31 
Remedy  for  industrial  depressions, 

218;  illustration,  226;  object,  226 
Repeal  of  Silver  Coinage  Law,  161, 

162 
Responsibility  for  depressions,  final 

analysis  of,  125 
Revivals  of  construction,  192 

S 

Safety  of  storage  of  surplus  iron,  38 
Say,  Jean  Baptiste,  22  f.n. 
Scotch  pig  iron,  prices  of,  in  New 
York,  239 


286 


INDEX 


Scotland  iron  market  booms,  35 

Search  for  cause  of  industrial  de- 
pressions, 71,  80,  81,  100 

Seneuil,  Courcelle,  63 

Silver  Coinage  Law,  70;  repeal  of, 
161,  162 

Sinton,  David,  34 

Six  industrial  depressions  from  1833 
to  1887,  141  et  seq. 

Small  crops,  45 

Smith,  Adam,  124 

Steam  navigation,  inauguration  of,  5 

Storage  in  times  of  plenty,  40 

Strikes,  causes  of,  110;  as  factors  of 
trade  depressions,  197 

Study  of  report  of  unfilled  orders 
of  the  U.  S.  Steel  Corporation, 
186 

Sun  spots  and  industrial  crises,  14 

Supply  and  demand,  26,  32;  illus- 
tration of  law  of,  116 

Supply  of  economic  tools,  64 

Surplus  production  and  regulation, 
31 

Synthetic  reasoning,  91 

Systems  of  business,  the  four  great, 
97 


Tables  illustrating: 
Profits  in  holding  iron,  36,  37 
Safety  in  storage  of  iron,  38 
Origin  of  freight  tonnage,  43 
Corn    crops   of   1900   and   1901, 

45 

Farm  products  and  volume  of  in- 
dustry, 49 

Crop  values  and  industrial  vol- 
umes, 49 

Presidential  elections,  50,  51 
Elimination  of  causes  of  financial 

depressions,  74 

Contemporaneousness  of  depres- 
sions, 80 


Wealth  of  the  United  States,  102, 
103 

Gains  and  losses  in  iron  produc- 
tion, 108 

Events  attending  construction, 
114 

Small  profits  from  boom  prices, 
119 

Periods  of  ups  and  downs  in  in- 
dustries of  the  U.  S.,  191 

Ten  periods  of  abnormal  advance 
of  prices  of  iron,  204 

Ten  periods  of  abnormal  decrease 
in  prices  of  iron,  208 

Unfilled  orders  of  the  U.  S.  Steel 
Corporation,  224 

Monthly  prices  of  iron  in  Phila- 
delphia from  1799  to  1849,  237; 
from  1842  to  1910,  238 

Lowest  and  highest  prices  of 
Scotch  pig  iron  in  New  York 
from  1825  to  1888,  239 

Alleged  causes  of  depressions  as 
elicited  by  committees  of  Con- 
gress, 241-244 

Alleged  causes  of  depressions  as 
gathered  by  agents  of  the  U.  S. 
Bureau  of  Labor,  245-247 

Monthly  statistics  of  pig  iron  in 
U.  S.  from  1896  to  1910,  248- 
252 

Analysis  of  average  prices  of 
iron  in  U.  S.  from  1896  to  1910, 
253 

Seven  industrial  depressions  from 
1825  to  1886,  and  eight  from 
1887  to  1910,  257 

Extracts  from  Mulhall's  Diction- 
ary of  Statistics,  260 

Contracts  for  construction,  and 
execution  of  contracts,  267 

World's  production  of  pig  iron 
from  1500  to  1910,  268 

Railroad  mileage  of  the  U.  S., 
272 


INDEX 


287 


Tables  (Continued) 

Building    permits    of    fifty-seven 
cities  for  years  1906  and  1907, 
273 
Unfilled  orders  of  the  U.  S.  Steel 

Corporation,  275 
Production,      consumption      and 
prices    of    iron    from    1800    to 
1910,  278 
Talleyrand,  39 
Tariffs  and  industrial  depressions, 

66 

Temporary  surplus  production,  30 
The  Economist,  London,  150 
The  Engineer,  London,  150 
Theories  as  to  causes  of  industrial 

depressions,  13-17 

Theory  of  circulating  and  fixed  cap- 
ital,   60;    of    periodicity,    54;    of 
overproduction,  22-42 
Time   of   demand   for   construction 
materials,  113 

U 

Underconsumption,  29 

Underproduction,  42 

Unfilled  orders,  information  needed 

concerning,  221 
Unfinished   construction,   study  of, 

183 


Unheeded  warnings,  201 

United  States,  development  of,  10; 

furnace  capacity  (iron)  of,  206 
United    States    Steel    Corporation, 

attempts     to     check     advancing 

prices,  117,  205;  unfilled  orders  of, 

186,  275 
Ups  and  downs,  cycles  of,  55 


Venezuela  proclamation,  162 
Volume  of  business,  uniformity  of, 

101 
Volume    of    construction,    need    of 

knowledge  of,  219 

W 

Wagner,  Adolph,  14 

Want  of  confidence  in  government, 

70 

Warnings,  unheeded,  201 
Wealth  of  the  U.  S.,  table  of,  102, 

103 
Why  prices  drop  near  end  of  booms, 

117 

Wilson,  General,  32 
Wright,   Hon.   Carroll   D.,   16,   64, 

143 


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